How to Reduce Debt & Improve Cash Flow for Retirement

Smart savings is key to a happy retirement.

Smart savings is key to a happy retirement.

Saving for retirement is inherently unfair. The decisions you make early on -- when retirement seems far away and the least important of your priorities -- make the biggest difference in your retirement income and resulting quality of life. No matter how far down the road of life you are, reducing debt and increasing cash flow is something you can start tomorrow to maximize your retirement preparation.

Reducing Debt

Find ways to cut your discretionary spending, such as by drinking one less gourmet coffee a day or smoking one less pack a week. Use that money to pay down your smallest debt account until it's completely paid off.

Use the extra money you found and the money you were using for the minimum payment on that account to pay aggressively on the debt account with the next largest balance.

As you pay off each account, take the money you'd been paying on it and add it to the payment on the account with the next largest balance. This snowball approach, popularized by financial author Dave Ramsey, accumulates the minimum payments from each account as you it pay off and adds them to the payments on the next account.

If you get a raise, bonus or monetary gift during this process, use it to pay down your debt. Continue to pay off your debts to free up funds for retirement savings and investments.

Increase Cash Flow

Paying off your debts increases your cash flow. Find other expenses to eliminate, and use that money to increase your retirement savings. Some examples include getting by with one car per family, working from home a few times a week to cut down on commuting and meal expenses, and eating most meals at home instead of going out to eat.

Consider taking on a part-time job or adding extra hours at your current job. Even working an extra five to 10 hours a week can add up to several thousand dollars in a year.

Look into starting a small business you operate from your home, such as eBay sales, a craft shop on Etsy or a cleaning or landscaping service. Such a business can mean a bit of extra money early and passive income as you grow. The sooner you accumulate retirement funds, the more years you'll have to grow those funds before you need them.


  • Focus on paying off your debts before saving for retirement. The interest rates on debt accounts are far higher than what you'll earn on your savings. The exception to this is fund-matched retirement accounts through your employer. You should maximize those contributions.

About the Author

Jake Wayne has written professionally for more than 12 years, including assignments in business writing, national magazines and book-length projects. He has a psychology degree from the University of Oregon and black belts in three martial arts.

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