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Learn... Plan... Take Action... Eliminate Debt!

Steps to Build Debt Elimination Plan
  Step 1 - Assess the situation
  Step 2 - Analyze your spending
  Step 3 - Identify ways to reduce spending
  Step 4 - Develop the plan
  Step 5 - Take action
  Step 6 - Monitor the results
  Step 7 - Get help if needed
  Debt payment
  Debt evaluation
  Interest payment
  Debt worksheet (pdf)
  Debt worksheet sample (pdf)
  Debt worksheet (xls)
The long-term debt diet
(Article by Brad Reagan from SmartMoney Magazine, 20 September 2007)

HOW MUCH DEBT is too much? You're probably overloaded if you can't get rid of it before retirement. For clients who are serious about paying down debt, Charles Farrell, a Denver financial adviser, offers guidelines that help keep debt in proportion to savings and income en route to a more secure retirement. These guidelines are based on a household earning $100,000 and assume a mortgage of about $145,000. Residents living in hotter housing markets on the coasts may need to adjust the targets upward — or work harder to hit the originals.

Under 40 Years Old
Target Debt Load
1.5 times annual income
National Average
1.5 to 3 times annual income
Our Advice
You're probably adding lots of firsts — home, child, minivan — so you're likely to add debt, too. So start managing it sensibly. Get rid of old credit card balances. When shopping for a mortgage and managing student loans, leave enough cash flow to save about 12% of your income. "If you get out of whack early on, it's really hard to catch up," Farrell says.
40-49 Years Old
Target Debt Load
Equal to annual income
National Average
1.4 to 2.7 times annual income
Our Advice
With the mortgage and student loans whittled down to a manageable level, the battle now is to avoid adding more debt. Resist the urge to "upsize" your home unless absolutely necessary. Try to drive your cars for at least a year after they are paid off, and apply those savings to pay down whichever other debts have the highest interest.
50-59 Years Old
Target Debt Load
Half annual income
National Average
1.2 to 2.4 times annual income
Our Advice
Keep the pedal to the metal. Pay off home-equity loans, and build a plan to get rid of the mortgage entirely, perhaps by downsizing. Unless your savings are plentiful, don't take on extra debt to help the kids with college. Due to the rules governing student loans, they can borrow at lower rates than you, and you can always help them out with payments later.
60+ Years Old
Target Debt Load
Debt-free by age 65
National Average
0.8 to 1.6 times annual income
Our Advice
Push through to the finish line by paying off the mortgage and any other lingering obligations. However, if your retirement kitty is meager for some reason, think about actually extending your mortgage so that you can have lower monthly payments. In retirement, when there's no longer income coming in, it's most important to manage cash flow.
National average data from SRI Consulting