Credit-card debt and retirement savings are going in opposite directions when it comes to financial planning. If you have too much credit-card debt, it can keep you from retiring according to your plan. On the other hand if you save enough money through the various retirement channels, you will be able to retire when you desire. When an excessive amount of your disposable income is going towards credit-card debt, you may have to contribute less to your retirement accounts.
Interest Rates
Whenever you have credit-card debt, if you don't pay your balances in full every month and without the benefit of a 0 percent introductory rate, you must pay finance charges every month. The higher your interest rate the higher the amount you pay in finance charges. Paying your credit cards late will cause you to incur late charges and a default interest rate that could be as high as 29.99 percent. Too much credit-card debt can lower your credit score when you use more than 30 percent of your available credit.
Payments
When you pay the minimum payment on your credit card debt, it can take years to repay. The finance charges you pay could add up to thousands of dollars depending on the size of your balance. Pay off your balances every month, if at all possible. Credit cards have become a way of life for a lot of people, and this makes paying the balance in full difficult.
Credit-Card Considerations
Credit-card companies can increase your rate any time, even on a fixed rate card, as long as they give you a 45-day notice. They can also reduce your line of credit or close your account without any type of warning to you. The aforementioned changes are effective Aug. 20, 2009. More changes in the credit card laws take effect in February 2010 and deal with limitations on rate increases and how credit card payments are allocated.
401k
If you want to plan for your retirement then it's a good idea to have several types of retirement accounts. Your employer will probably offer a 401k which is an employer-sponsored retirement account. These types of accounts earn interest for you and should continue to grow over time. Conventional wisdom says if you diversify your portfolio, you can limit the amount you might lose. Even with diversification, we saw many people lose their life savings when the economy experienced a recession. When you invest, many times, there are no guarantees of a return.
Other Retirement Accounts
Other forms of retirement savings are IRAs, certificates of deposits and annuities. These accounts help you save for retirement, and they pay you some type of interest over time. If you decide to have an IRA, the two types to choose from are the Roth IRA and the traditional IRA. Each has its own benefits and advantages. Before choosing one over another, it's a good idea to consult with your financial planner or adviser.
Terms And Conditions
Some retirement accounts, such as traditional IRAs, don't allow you to withdraw money until you reach the age of 59 1/2. If you have a 401k, you are not allowed to withdraw money until you reach the age of 59 1/2. Otherwise, there could be penalties and taxes that have to be paid. Money that you contribute to your 401k is tax-deferred.
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