When Diana Mikas was in her late 40s and early 50s, she found herself in “a whole new world” financially. A job layoff and a costly divorce put Mikas in debt with credit cards, legal bills, and personal lines of credit. Instead of feeling secure as she entered the second half of her life, Mikas felt “displaced financially, emotionally, and physically.”
Mikas is far from alone. While some members of Gen X — Americans in their early 40s through early 60s — are at their peak years of earning and saving, a substantial number of them are still coping with debt and even seeing it increase, according to a survey of 2,000 Americans by Accredited Debt Relief. Holding that debt is not only stressful, but also erodes future financial security: A staggering 41% of Gen X survey respondents say that debt has prevented them from saving for retirement, a rate higher than any other age demographic.
About one in three Gen Xers told Accredited Debt Relief that they feel hopeless about their debt. But even for those who have stopped contributing to their retirement, there’s hope, says Eddy Jurgielewicz, a Certified Financial Planner with Upbeat Wealth.
“We have to help people understand it’s not a bad thing,” he says about debt. “It’s just the nature of life, and as long as we put a plan together to get someone on track, then that’s what matters.”
Start with a close look at your finances
Once Mikas’s divorce settlement was finalized, she was able to pay off most of her debts. When that was done, she vowed to reset her financial life.
“I saw this as an opportunity to reassess my life on all levels,” says Mikas.
She took inventory of all her debts, expenses, and savings, making a plan to manage not only her finances, but the emotions around them. A decade later, Mikas, 64, is now a financial educator and the author of “No Regret Money Rules.”
Many of her clients feel shame in not having saved enough for retirement, something Jurgielewicz also sees. Both agree it’s imperative to do what Mikas did: take a clear-eyed look at your financial reality, and create a plan to move forward.
“As soon as someone can accept that, face it head-on, and say, ‘I am behind,’ then they’re ready to take action,” Jurgielewicz says.
Pick up your retirement savings
Even if you have high-interest debt (typically defined as debt with interest rates over 6%), it’s typically a good idea to continue contributing to your retirement savings, or to restart if you’ve stopped. This is especially true if you have access to an employer match for your retirement contributions. In that case, each dollar you invest in a retirement account will be matched at 50% to 100% by your employer, up to a certain threshold.
That’s a return you won’t see elsewhere.
“No credit card payoff will give you a 50% return,” Mikas says. If possible, she advises, contribute the maximum amount that your employer will match, even as you work to pay down debt.
Tackle high interest debt first
Once you’ve prioritized saving enough to access your employer match, your next priority should be high-interest debt like credit cards, Jurgielewicz says.
Gen Xers are particularly good at trimming their expenses: 45% of Gen Xers have cut back on discretionary spending to pay off debts, according to the Accredited Debt Relief survey. Keep making the minimum payments on all your debt, and direct any extra funds toward the highest interest rate debt.
For those higher-interest debts, you might also consider asking lenders for a lower interest rate, requesting a balance transfer, using debt consolidation, or turning to a reputable debt relief company like Accredited Debt Relief.
“Anything that will help speed up the progress,” Jurgielewicz says.
Balance math and emotions
When your high-interest debt has been tackled, the decision about how much to save and how much to put toward debt payoff becomes more nuanced and personalized.
“Debt is one of those things that’s highly emotional,” Jurgielewicz says. “We have some people that just — even if they’re very financially sound — the thought of any kind of debt, regardless of the interest rate or the balance, is enough to keep them up at night and makes them anxious.”
For those folks, paying off debt aggressively may be the best choice. For others, saving and investing for the future while chipping away at debt with moderate interest rates is more appealing.
“We have other people,” Jurgielewicz continues, “that are okay carrying debt as long as it’s not creating a more problematic financial situation or impeding their ability to meet their financial goals.”
There’s no universal right or wrong answer — just the one that works for you and your family.
Reframing the discussion about debt
Calculations around returns and interest rates are important, but Mikas also encourages her clients to reframe how they view money and debt. Money, she says, is a tool for creating security, enjoyment, and an ability to live the life they want.
Debts acquired have often brought valued things, like an education, a trip with family, or even a much-needed divorce. The decision to pay for those things in the future isn’t a moral failing, it’s simply a choice, Mikas says.
With that more positive mindset, the idea of saving for retirement while paying down debt becomes more attainable.
“It’s something that you can absolutely do,” Mikas says, “and do it much more quickly than you think, once you are intentional.”
Created by the Commerce Team at Business Insider with Accredited Debt Relief.