Being debt-free is a worthwhile goal; unfortunately, for most people, it is unrealistic - especially for those of pre-retirement age with children, a car payment or two, and a mortgage. As such, most people need to focus on managing their debt first since it's likely to be there for much of their adult life. With inflation on the rise (and subsequent interest rate hikes), your credit card debt could be even more difficult to pay off.

Eliminating debt is especially crucial for anyone approaching retirement age. However, the good news is that when debt is handled wisely, you won't need to shell out every cent of your hard-earned money to your lender because of exorbitant interest rates or feel like you're always on the verge of bankruptcy.

Here's how you can pay off debt the smart way while at the same time-saving money to pay it off even faster:

Review Each Debt

First, assess how much and what type of debt you have by writing it down using pencil and paper or entering the data into a spreadsheet like Microsoft Excel. You can also use a bookkeeping program such as Quicken or a debt management app such as Debt Manager, Debt Payoff Planner, or ChangEd if you are only concerned about student loan debt. When compiling or entering your list, be sure to include every instance you can think of where a company has given you something in advance of payment, such as your mortgage, car payment(s), credit cards (all of them), tax liens, student loans, Paypal Credit, and store payments or cards used on electronics or other household items such as Home Depot or Best Buy.

Record the day the debt began and when it will end (check your credit card statements), the interest rate you're paying, and your typical payments. Next, as painful as that might be, add it all up - try not to be discouraged. Remember, the goal is to break this down into manageable chunks while finding extra money to help pay it down.

Make sure that the debt creditors claim you owe is actually what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

If you have trouble making your payments, contact each creditor and let them know you are having difficulty making your payments. Tell them why you are having trouble - you recently lost your job, for example, or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

Identify High-Cost Debt

Even if you haven't lost your job or experienced sickness related to COVID-19, it never hurts to identify which debt is more expensive than others and pay it off first. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense.

In addition, there are several ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage. However, keep in mind that second mortgages greatly increase the risk that you may lose your home.

Unless you're getting payday loans (which you shouldn't be!), the worst offender is consumer debt such as personal loans, auto loans, and credit cards with high-interest rates. Credit cards are the easiest to tackle, so start with them first. Here's how to deal with them:

  • Don't use them. You don't have to cut them up, but take them out of your wallet, put them in a drawer, and only access the one with the lowest interest rate in an emergency.

  • Identify the card with the highest interest, pay off as much as you can every month, and pay the minimum amount due on other cards. When that one is paid off, work on the card with the next highest rate.

    Check your credit cards for balance transfer rates and transfer balances from higher interest accounts to lower interest ones. When you pay less interest, you can pay down your debt faster. The catch is that at the end of the balance transfer period (typically six months to 12 months), the low or, if you're lucky, zero interest rate reverts to a higher credit card interest rate.

  • Don't close existing cards or open new ones. It won't help your credit rating and will only hurt it.

  • Pay on time, absolutely every time. Late payments - even one - can lower your FICO score.

  • Go over your credit card statements in detail and look for monthly charges for things you no longer use or don't need anymore.

  • Call your credit card companies and ask them nicely if they would lower your interest rates - sometimes it works!

Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

Live Below Your Means and Save, Save, Save

Do whatever you can to retire debt - even if it means reevaluating your priorities and changing your lifestyle. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

According to the IRS, the average tax refund this year is $3,536. If you are expecting a large (or even small) tax refund this year, consider using it to pay down any debt you owe. If you feel like you have a handle on debt, use your windfall to increase your emergency savings or contribute to a retirement account.

Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses such as housing and healthcare and optional expenses such as entertainment and vacation travel. Stick to the plan. Leave your credit cards at home. Make it a habit to pay for everything you purchase with cash or a debit/credit card. If you don't have the cash (or the money in your bank account) for it, you probably don't need it. You'll feel better about what you have if you know it's owned free and clear.

Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Think twice before purchasing the latest high-tech gadgets. Do you really need the latest iPhone? You'll be surprised at what you don't miss. Consider buying a used car, forgoing that expensive gym membership you don't have time to use anymore, visiting the public library to check out DVDs, or subscribing to a video streaming company instead of going to the movies - at least until your debt is under control.

Never, Ever Miss a Payment

Not only are you retiring debt, but you're also building a stellar credit rating. If you ever get another job, buy a house, rent an apartment or buy another car, you'll want to have the best credit rating possible. A blemish-free payment record will help with that. Besides, credit card companies can quickly raise interest rates because of one late payment, and a completely missed one is even more serious.

Need Help Managing Debt?

While each of these steps, taken alone, probably doesn't seem like much, you'll see your debt decrease every month if you adopt as many as you can. If you're having financial troubles or need help managing debt, or need advice regarding steps you can take to recession-proof your finances, help is just a phone call away.