When Good Debt Goes Bad: “Good Debts” Interfere with Savings, Too

The good news is that most retirement accounts have recovered from the lows they hit in 2008. So what’s the bad news? Nearly half of middle-class Americans still won’t have enough savings to retire, according to a recent survey by Wells Fargo.

The culprit this time isn’t the market; it’s debt – and not just the bad kind.

We all know that charging too much on credit cards and falling behind on payments can get in the way of saving. But these days, responsible spenders are struggling just as much as wanton spenders.

From mortgages to credit card balances, debts that you consistently pay on time have traditionally been considered “good” debts because they help build and improve credit. In our debt-oriented economy, cultivating good debt is as important as avoiding bad debt.

But keeping up on those debts comes at a cost. In the Wells Fargo poll, 60 percent of participants said their first priority was paying monthly bills, and 42 percent agreed it was impossible to pay bills and contribute to retirement.

Paying bills on time is obviously good practice. But when it comes at the expense of your future, you may want to rethink your financial habits.

It’s easy to live paycheck-to-paycheck, month-to-month, while postponing saving. But without money to spare, how will you be able to retire? Paying your bills may be possible today thanks to your paycheck, but what will happen when you’re no longer earning income? You’ll be left high and dry – and still mired in debt.

Saving money isn’t just essential for retirement – it’s also necessary for staying financially solvent during emergencies. Even if you can afford your bills today, that might not be the case tomorrow if a layoff, pay cut, illness, divorce, car repair - or any other unexpected expense under the sun – impacts your budget.

It’s time to forget about drawing the line between “good debt” and “bad debt.” The reality is that any debt preventing you from protecting your financial future is a threat.

When debts are keeping you from moving forward for any reason, eliminating them through bankruptcy may be an option. If you earn a regular income, but most of your paycheck is going to debt, Chapter 13 bankruptcy may be right for you.

With Chapter 13, it’s possible to reorganize most non-mortgage debts into affordable payments made over a three- to five-year period; at the end of that time, remaining debt is discharged entirely.

Unlike with other types of bankruptcy, there’s no risk of losing assets so long as you make the agreed-upon payments– in fact, Chapter 13 is one of the most effective ways for debtors to protect important possessions, like a home.

Imagine: No more living paycheck-to-paycheck. Actually having money left over to build a nest egg. No longer paying interest, penalties and fees. Finally getting a good night’s rest because you’re not up until the wee hours fretting over how you’ll afford retirement.

If you can afford to set aside money each month and still stay current on debts, great! You’re in a better position than most Americans. But if debt has slowly taken over your life, there is no shame in seeking help. The sooner you break free from debt, the sooner you can enjoy a financially secure future.

To learn more about bankruptcy’s ability to eliminate debt, contact DebtStoppers. Call or email us to schedule your free personal debt consultation with a knowledgeable DebtStoppers bankruptcy lawyer today.


 Is “Good Debt” Ruining Your Chance of Retiring?, by Adam J. Wiederman, Daily Finance

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