Strategies for minimizing interest payments and eliminating debt
If you’ve accumulated more credit card debt than you can pay off in a few months, how can you quickly eliminate that debt while minimizing your interest payments?
The particular strategy you should follow will depend on many factors, including the total amount of debt, the nature of the debt, your credit score, your income and your financial plans. Because there are so many factors to consider, it’s best to talk to your advisor about the specifics of your situation, but below we share some general guidance.
A small amount of debt
If you’ve accrued a few thousand dollars in credit card debt, but you will be able to pay it off in 12 to 21 months, consider applying for a credit card with an introductory 0% APR period as well as a 0% balance transfer fee. The length of the 0% APR period can range from 15 to 21 months. If approved for the card, you could transfer your debt to it and pay it off during the 0% APR period, thereby avoiding any interest charges. The money you save can grow significantly, given the power of compounding.
However, before applying for the card, consider whether you plan on purchasing a home in the near future or applying for another type of loan. Applying for a new credit card might lower your credit score enough to negatively impact your loan application or the loan interest rate.
A significant amount of debt
If your debt is so substantial that you won’t be able to pay it off during the introductory period on a new credit card, you may want to seek a personal loan with a fixed interest rate. This interest rate is likely to be lower than the variable interest rate on your credit cards, and you can use the loan to pay off all the credit cards.
To choose the most favorable loan terms, you would want to use a debt consolidation calculator to compare different loan term options and the amount of savings each provides. Your advisor can also help you with the back-of-the-envelope calculations and parse your options (e.g., a securities-based line of credit).
Before seeking a loan, speak to your financial advisor about the specifics of your situation. They have likely helped others in the past who are battling debt issues and can help you find an objective way forward. If part of the debt is for medical bills, for example, your advisor may counsel you to first pursue having the medical debt forgiven. Your advisor may also recommend a nonprofit debt relief program, with counselors who will help you devise a debt reduction strategy for a small monthly service fee.
These counselors, along with other trusted financial professionals, can also recommend strategies that may help you avoid future debt problems.
Next steps
Speak to your advisor about the details of your debt situation.
Use online calculators to explore various debt reduction strategies.
Compare nonprofit debt management program offerings and fees.
Top strategies for planning for and responding to inflation during retirement
If you’re close to or in retirement, recent inflation has likely been unnerving, particularly given that stock markets have experienced significant volatility since early 2022. That is, you’re looking at higher prices while parts of your portfolio have lost value and your purchasing power has slipped. So, how should you respond to protect your retirement goals?
When it comes to investing, the best strategy generally is to think long term, develop a plan with your advisor and don’t panic. The long-term planning and diversification you and your financial professional have already done were designed to help you weather multiple scenarios, including rising inflation and zigzagging markets.
But what if you’re in or nearing retirement? Then do you have cause to panic? No. There’s still time to adjust your strategy and/or cut costs, and chances are your current retirement savings (paired with inflation-adjusted Social Security benefits) are already diversified enough to withstand inflation.
Maximize steady income
Social Security benefits and other annuitized income can help you keep pace with inflation during retirement. Most retirees, with a few exceptions, receive Social Security retirement benefits, which include a cost-of-living adjustment (COLA) designed to keep pace with inflation.
Because Social Security benefits are adjusted based on inflation, a portion of your retirement portfolio is already automatically protected from a significant erosion in purchasing power.
You can further strengthen your protection from inflation by including annuities with COLAs in your portfolio. Annuities are insurance contracts that pay out invested funds in defined, guaranteed monthly payments in the future (regardless of how the market is doing). When you choose an annuity, you can select one that includes a COLA to further strengthen this guaranteed source of income. Guarantees are based on the paying ability of the issuer.
Hurry up and wait
A diversified retirement portfolio may reduce inflation risks because some of the asset classes within it may perform well during times of high inflation, balancing out lost value from other asset classes.
But what if you’re in or near retirement and fear you don’t have enough time to make up for losses? That fear may drive action, but it’s likely better to do nothing at first. It’s time to use your sounding board. Before you make any changes to your financial plan, it’s critical that you consult with your family and financial professionals to temper heightened emotions. Because each person’s needs, goals and options are unique, a customized strategy based on your long-term goals is essential.
There is no assurance any investment strategy will be successful. Investing involves risk, including the possible loss of capital. Diversification does not guarantee a profit nor protect against loss.
Next steps
Work with your advisor to develop a long-term financial plan.
Examine your portfolio and research annuitized income sources to determine if they are right for you.
Avoid making emotionally driven or hasty investment decisions.
