4-Step Program For Gen Xers To Eliminate Debt and Save More
Date: January 16, 2024

4-Step Program For Gen Xers To Eliminate Debt and Save More

Gen Xers carry more credit card debt, on average, than other generations. The average credit card debt for folks born between 1967 and 1982 is more than $7,000, versus $6,785 for Baby Boomers and $5,928 for Millennials.

As a financial advisor in Tennessee, I see people wrestling with debt for many reasons. Gen X has been hit with numerous financial challenges that previous generations haven’t had. You may have had children later and thus be paying for your children’s higher education at the same time as you’re saving for your own retirement and helping your aging parents. Gen Xers were the first generation to have significant student loan debt. As you paid your student loans down, you may have taken on credit card debt to pay for everything else. 

The financial freedom you’ve been yearning for starts here.

If you’re carrying a lot of debt – or even a small or medium amount – one financial fact is clear. You have to pay a monthly bill to pay that debt off. Those debt service payments can impact your ability to save. The goals for which you want to save, whether it’s retirement, children’s education, or a second home, are all negatively affected by debt.

To top that off, interest rates have climbed steadily in recent years. The higher the interest rate, the higher your monthly credit card bills will be.

Fortunately, there’s a 4-step program to get rid of debt and save more for Gen Xers. Here it is.

1. Pay down debt

The most important step is to create a plan to pay down your debt. The less debt you have, the lower your monthly debt payments will be. If you just make the minimum payment every month, it can take a very long time to pay down your debt. So, if you have multiple sources of debt, allocate as much money as you can to debt repayment and choose between the two main methods of debt reduction.

Method 1: Debt snowball

In a debt snowball, you start paying off your smallest amount of debt first. After it’s paid off in full, you take the payment and put it toward the next-smallest amount of debt.

The main advantage of a debt snowball is that vanquishing the smallest first can be relatively quick – and that’s very motivating. Eliminating the smallest amounts of debt also frees up that debt service to put toward the rest of your debt.

Method 2: Debt avalanche

In a debt avalanche, you pay off the debt with the highest interest rate first. Once that’s eliminated, you put the payment toward the next highest interest rate debt and keep going. The main benefit of a debt avalanche is that you’ll pay less interest over time compared with the debt snowball method, making it the most cost-effective strategy. 

The primary drawback to the debt avalanche is that it doesn’t give you the psychological boost that a snowball does. It can also be tough and time-consuming to manage multiple interest-rate debts.

2. Get a lower interest rate

Another strategy for reducing debt and debt service is to consolidate your debt with a lower interest rate. There are two methods to do this.

Get a personal loan

While credit card interest rates are currently very high, at roughly 27 percent, rates on personal loans are much lower, ranging between 11 percent and 12 percent. The lower the interest rate, the less you pay in debt service.

Transfer your balance to an introductory rate card

Many credit cards offer a 0 percent interest rate for an introductory period, usually ranging from 12 to 18 months. You can boost your ability to pay down debt by transferring your existing debt to one of these cards. All your payments will go toward the debt itself, not the interest, as long as the introductory period lasts.

3. Work with a financial advisor to manage your cash flow

Another crucial step is to sit down with a financial advisor to review your cash flow: your expenses and your income. This cash management step provides multiple benefits.

First, it’s very important to stop incurring debt. Without that, your best efforts to eliminate your existing debt and save more, frankly, can come to naught. If you routinely spend more than you make, you might just keep getting into debt. A review of your cash flow can pinpoint if your spending often exceeds your income and pinpoint the categories where your spending could be trimmed. It may indicate that you need to increase your income going forward.

Second, a review of your expenses and income can give you an overview of areas where you might cut down expenses and put the money toward debt service.

Third, remember that one of Gen X’s main goals in reducing debt is to boost your savings for retirement and other objectives. A cash flow review can also provide a snapshot of your ability to save and provide data to create a savings plan. 

4. Save and invest to meet your goals

As you eliminate your debt, put the one-time debt payment toward savings! 

It’s a good idea to save for an emergency fund in case of sudden short-term needs. The existence of an emergency fund keeps you from using credit cards to meet the obligations life can throw at us out of the blue, like an expensive car repair.

You also need long-term savings and investments targeted to your individual goals. For long-term goals, we at Sapiat Asset use a holistic approach to give comprehensive advice, including asset classes, cost-effective methods of stock market investment such as dollar-cost averaging, and specific investment recommendations targeted to your individual objectives. 

For Gen X retirement planning specifically, we can project your retirement income and savings using multiple scenarios vis-à-vis your goals. We also recommend tax-saving methods of investment, such as utilizing tax-advantaged retirement vehicles such as 401(k)s and Individual Retirement Accounts (IRAs). 

Contact Sapiat, a fiduciary Greeneville, TN financial advisor today for a complimentary consultation about how to eliminate debt and increase your savings. 


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Steve Dick