Many American’s continue to struggle with the heavy debt loads they accumulated during or after the recession.

There is a way out of this dilemma. The solution will require prudent fiscal management and planning, things that many of us are not used to implementing. The first step towards fiscal sanity and achieving the American dream of a comfortable retirement is to lower or eliminate all debt payments.

Lowering or eliminating your debt payments can also be a daunting task when you are drowning in debt like many Americans. Your loans dictate that you will be paying for up to 30 years or more and that may as well be forever. You may be straining to make your minimum payments; but, if you adhere to certain financial principals, you can turn what seems an insurmountable task into one that will pave your way to success. What are these principals?

First, you must start now. A dollar of debt paid down today is worth many dollars of debt paid down ten years from now. It is the same concept as saving money. Thirty years from now, a dollar saved today will be worth many times more than a dollar saved 10 years from now. This concept does not mean that you have to put thousands of dollars toward your debts in the first month. Even small payments today will save you thousands later on.

Second, you must understand that all debt is not equal. What are the differences in debt? For one, mortgage debt is tax deductible and consumer debt is not. This does not mean that you should obtain as much mortgage debt as possible because it is free. If you borrow $1.00 and the government gives you back $0.25, you still owe $0.75. What it does mean is that if you have a significant amount of consumer debt and a significant amount of mortgage debt, it makes sense to concentrate on consumer debt elimination first.

You also want to concentrate on consumer debt elimination because consumer debt is typically easier to attack than mortgage debt and gains are easier to achieve. This is because consumer debt is paid out over a shorter period than mortgage debt. Take a look at the following example–

In this situation, you can achieve one-third of the reduction in payment of the mortgage loan (500 vs. 1,500) by paying off one-twentieth of the size of the loan (10,000 vs. 200,000). While paying off a $10,000 loan is not easy, it is much easier than paying off a $200,000 loan! When you add the effect of taxes, the benefits are multiplied. If you do have equity in your home, you can use that equity to pay off consumer debts and this may put you in a position to eliminate mortgage debt in the future.

A careful analysis of your debts will show you the most efficient way to pay them off. Even consumer debts can be paid down in a way that will have you debt-free in a fraction of the time. For example, if you have the following debts–

If you pay the smallest loan off first, you can then apply the savings to the credit card. When the credit card is also paid off in approximately 30 months, you can then use the savings from both payoffs ($400 per month) to apply to the car. By the time you are finished, you can then apply the $1,100 per month savings to a mortgage, cutting down the term drastically. There are programs designed to automate this process so that you can achieve maximum efficiency.

If you would like more information as to the best way to pare down your debts, contact your loan officer or real estate agent. Of course, you also have to make wise decisions in the future regarding taking on more debt. The key towards retiring comfortably is reducing your debt and/or becoming debt free and not letting debt overload happen again!