If you’re between the ages of 40 and 60, you’re most likely focused on paying off your debt while dealing with family obligations. This can make you feel stretched thin, negatively impacting your financial goals.
So here’s a cheat sheet of goals and strategies you can use at this stage of your financial journey.
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Financial Goals
Clear Debt
At this stage, it’s not only important to pay down debt, but also to clear it entirely. As you approach retirement, the last thing you want to worry about is debt without steady income.
“My goal is to slowly get myself out of debt,” says Jay Bossert, a 42-year-old gig worker. Bossert acknowledges he maxed out his credit cards and recently just paid off two that were in a consolidation collection.
“Transparently, most of my debt came when my wife and I found out we were expecting, and our daughter would be born with a disability,” Bossert says. His daughter is doing well now, but at the time his wife “didn’t work, her other kid’s father got laid off and I was the only one working. It was a lot of unforeseen events.”
Circumstances such as these are unfortunately too common with this age group, who often bear the brunt of family responsibilities. According to STRAT7 research, 83% of Gen Xers feel responsible for supporting their children financially, while 63% feel financially responsible for their parents. According to Experian, this age group unsurprisingly has the most credit card debt:
— Generation Z (18 to 28): $3,553
— Millennials (29 to 44): $7,068
— Generation X (45 to 60): $9,684
— Baby Boomers (61 to 79): $6,766
While clearing debt is easier said than done, there are a number of methods you can employ that will help:
— The snowball method. With this strategy, you make the minimum required payments on all of your debts and then direct any leftover money to the debt with the lowest balance. This way, you’ll start eliminating your smallest debts first, which will pick up momentum, allowing you to eventually tackle larger debts.
— The avalanche method. This is the opposite of the debt snowball method. With the avalanche, you make all of your minimum payments, but you put leftover money toward your debt with the highest interest rate. This allows you to start reducing interest charges more quickly, focusing on bringing down those balances.
— The debt blizzard. If you have several accounts that need to be paid down and they also have high balances, consider combining the two previous methods into a debt blizzard. With this method, you focus on the smaller accounts first, paying them off until you have a more manageable number of accounts — the snowball method. Then, you shift focus and pay down your accounts with the highest interest first — the avalanche method.
— Balance transfer credit cards. A tried and true method, using a balance transfer card allows you to combine multiple debts into one more manageable credit card payment. Many balance transfer cards also come with a 0% introductory annual percentage rate period, providing a lengthy window (sometimes close to two years) to pay down your debt with no added interest.
Remember, these methods are just a bandage. To keep debt under control, you have to address the root of the issue, which can be the way you manage money.
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Maximize Retirement Contributions
A good rule of thumb is to contribute at least 15% to 20% of your income to a retirement account. Financial experts also agree that by age 40, you should have at least three times your annual salary saved for retirement. But these are just guidelines, so don’t freak out if you’re not there.
If you’re a little behind, here are few tips to help you maximize those contributions:
— Take advantage of employer matching
— Invest in an individual retirement account
— Invest spare cash if possible
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Credit Card Strategies for 40- to 60-Year-Olds
This is when you can really start getting the most out of your credit cards. You’re more established, you know the basics and you’re ready to be rewarded for your tactical spending.
Optimize Rewards
If you haven’t already, you should get comfortable juggling multiple credit cards. You’re leaving money on the table if you don’t gear your credit card strategy to your spending.
So at this point in your financial life, you should have multiple credit cards that all have a job.
— A premium travel credit card. This is the one that’s going to have an annual fee. (There’s unfortunately no way around it.) But with that annual fee comes perks and benefits. Even if you don’t consider yourself a frequent traveler, there are midtier travel cards that offer plenty of benefits for a lower annual fee. It can mean the difference between paying full price for a ticket versus a sizable discount or even free with rewards.
— Your primary rewards card. Consider this your favorite card — the one you lay down every time you go out. It should reward you the way you want — either cash back or points/miles — and it should earn the highest out of all the cards in your wallet.
— A flat-rate cash back card. This is your “everything else card” — the one you use when you won’t receive rewards on a purchase because it doesn’t fall into a category. Cards like the or the are solid options since they earn 2% cash back on all purchases.
— A co-branded credit card (possibly). This is for airline and hotel loyalists. If you travel often and have a preference for either, consider the credit cards associated with that airline or hotel.
Now, there could be some overlap with whatever premium travel rewards card you use; sometimes these are the same card. For instance, I use my as both my travel card and my “foodie card,” since it earns four points per dollar spent at restaurants and U.S. supermarkets. But my friend’s foodie card is the (which earns 3% cash back on dining and grocery store purchases) because she prefers to earn cash back rewards in that particular category.
Don’t be afraid to branch out from just the one or two credit cards in your wallet. A card that’s over 10 years old is like a pair of jeans from high school — it probably doesn’t fit you the same.
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Don’t Overspend
Your main focus should be on maximizing credit card rewards without overspending. Remember, you’ve got your retirement to think about.
“Shop because you need things,” says Bossert. “Never use credit as an ‘I will deal with it later.'”
Even though you’re matching your credit cards to your spending, it’s important to remember the basics, like keeping your credit utilization below 30% and paying more than the minimum payment every month.
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Maintain, Maintain, Maintain
Bossert’s primary focus, for instance, is not exceeding his credit limits and keeping his score in good shape. “We hear it all of the time: Only borrow what we can pay back,” says Bossert. “I know rewards points can be addictive. When life got hard, it felt really, really good making those points.”
At this point in the game, it’s all about:
— Protecting your credit score
— Minimizing interest
— Keeping your debt low and manageable
— Keeping old cards open to increase the age of your accounts
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