Enjoy a Worry-Free Retirement

When you picture your retirement, you probably aren't dreaming about mountains of bills and phone calls from debt collectors. Yet, if you fall into any of these common debt traps, you could seriously hamper your ability to retire free of debt. Avoid making the following mistakes, and you'll thank yourself later.

Credit card blunders. Credit cards are one of the most significant forms of debt in most American households. High interest rates and large fees can cause debt to spiral out of control, making it difficult to pay off your balance. If you're burdened with heavy credit card debt now, make an appointment with a credit counselor and formulate a plan to pay down your debt. If you aren't already in deep water, consider yourself lucky. Prevent future problems by refusing to make impulse purchases with a credit card, and pay off any emergency charges as quickly as possible.

Mortgage mistakes. Many Americans feel tempted to buy a more expensive home than they can really afford. Remember that you're more familiar with your finances than a loan officer, and don't take on debt that makes you feel uncomfortable. Aim to spend no more than 28 percent of your monthly budget on you house payment, including homeowner's insurance, private mortgage insurance, and property taxes.

Second mortgages are often a big mistake. If you're tempted to take out a second mortgage to pay for home renovations, make sure the value of your house increases enough to cover the cost of the loan plus interest.

Risky 401(k) moves. When you need cash for a child's college tuition or an emergency, you may feel tempted to borrow from your 401(k). But this can be a risky move with harsh long-term consequences to your finances. Even if you eventually pay yourself back, you've lost the interest that may have accumulated over months or years. It may be easy to ignore the consequences now, but you might regret this decision once you retire.

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