Having debt makes it harder to save money, invest in retirement accounts, and feel good about your long-term finances. That's why attacking a big debt early is a great move, but the longer you wait, the more time it has to compound.
A 30-year-old man recently went on Reddit (NYSE:RDDT) for advice on tackling an $83,000 debt. He's only 30, so he has plenty of time, but it can get worse if he isn't financially disciplined. He's married, and the couple brings in $160,000 per year. They also have two young children.
"We don't have any savings or emergency fund," the husband said.
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The couple pays $2,497 per month in rent and has a $29,000 auto loan. The remaining $54,000 is on their credit cards. The couple has a combined $70,000 in their retirement accounts and is holding off on further contributions as they get out of debt.
Several Redditors jumped in the comments and shared their suggestions.
Focus On What You Can Do Now
The top comment came from a Redditor who encouraged the original poster to stop thinking about what could have been done differently and start focusing on how they can change the situation. This thought came up because the original poster mentioned that he felt like he was behind where he should be.
Some people are younger and richer than you, but that doesn't impact your finances. You can feel good about other people reaching their financial goals at younger ages without feeling bad about your progress. Getting your mindset right is a key part of getting out of debt and building a significant nest egg. Technically, the couple still has plenty of time since they are in their early 30s.
"Don't let someone else's situation make you feel like it is hopeless for you to right your own ship," the commenter wrapped up his thoughts. The couple won't have to retire for a few decades. That's enough time to get out of an $83,000 debt, buy a house, and contribute consistently to your retirement accounts.
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Prioritize Credit Card Debt
Several Redditors encouraged the 30-year-old to tackle the credit card debt first. These financial products are notorious for high APRs. Luckily, the husband knows he made mistakes in his 20s, such as racking up credit card debt and only making the minimum payment. That means he's less likely to make similar mistakes as he gets on the path to becoming debt-free.
One Redditor also suggested treating the credit card's balance as an emergency. Instead of building an emergency savings fund, the husband should use any extra money to pay off the credit card debt. You never know when an emergency may come up, but if you pay your credit card, you're not accruing interest on the debt that you pay off.
Another Redditor suggested holding off on a house until the couple has paid off the credit card debt. It's also difficult to get approved for financing if the couple has an annual $160,000 income and $83,000 in debt. The same Redditor suggested living frugally for a few years to get the debt down faster.
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Contribute To The Full Employer 401(k) Match
Although most of the conversation revolved around paying off credit card debt, one Redditor suggested contributing to retirement accounts if the employer will match it. The commenter reasoned that "the 50% or 100% return will beat your credit card/personal loan interest."
That headstart, plus the compounded returns the couple can generate from their portfolios, can exceed what they would pay in interest. However, it doesn't make much sense to contribute to a retirement account once the couple has maximized the employer's 401(k) match.
Beyond that, most people agreed that drastic lifestyle changes were necessary for the couple to get out of debt. Side hustles remain a popular way to boost income if one or both spouses have some extra time. You don't have to commit to a side hustle forever, but having an extra income source can make a big difference in how quickly the couple gets out of debt.
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