Do you have a problem with debt?

The telltale signs are bill collectors hounding you, the need to move balances from one credit card to another, having to use a credit card for any emergency, sleepless nights and perhaps family tension.

But even if you've never missed a credit card or mortgage payment, you may well have an impending problem.

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If debt is keeping you from saving for retirement, you are on your way to a struggle. In fact, if you are in your 30s and saving less than 12 percent of your pay, you are likely to fall short of what you'll need in retirement, said Charles Farrell, a Medina, Ohio, financial consultant and tax attorney.

In a recent article in the Journal of Financial Planning, Farrell tells other members of his profession that even so-called "good debt"--like a mortgage--is a problem if it interferes with the ability of people to save adequately.

The bottom line, Farrell said, is that people need to invest 12 percent of their pay each year between age 30 and 65. If they do, they should be able to accumulate about 12 times their salary by the time they retire, and generate about 60 percent of their pre-retirement income to live on each year.

If mortgages, car payments, credit cards and other debt get in the way early in life, people will have to save more than 12 percent to catch up--a difficult undertaking. For example, if an investor saved only 5 percent of pay from age 30 to 39, he would have to increase it to 18 percent for every year after 40.

The good news in all of this: If you have employer matching payments in a 401(k) plan, saving won't be as difficult. With a 4 percent match, you could invest 8 percent of your salary in the 401(k) and count on your employer to get you to the 12 percent threshold. The bad news is that Farrell is also figuring the Social Security and Medicare systems will remain stable.

But Federal Reserve Chairman Ben Bernanke, in a recent speech, painted a pretty ugly picture of their future.

With Americans living longer than ever, he said the nation will face significant strains if it keeps offering the same Social Security and Medicare benefits without increasing taxes to pay for the additional costs.

By 2030, he said, paying for Social Security and Medicare will take 13 percent of the nation's gross domestic productif there are no changes to the system. That compares with 7 percent today.

If you think there's an easy way out of this, consider what Bernanke said would have to happen to taxes if the nation continues the status quo with Social Security and Medicare. "Taxes collected by the federal government would have to rise from about 18 percent of GDP today to about 24 percent of GDP in 2030, an increase of one-third in the tax burden over the next 25 years," he said.

As a result, whether you are 25 or 55, letting debt interfere with retirement saving could be a dangerous proposition. Not only might Social Security and Medicare be reduced when you need it, but during your later working years you could face higher taxes--further cutting your ability to save.

Farrell's advice is to think carefully before moving into a larger, costlier home, and to scale back your car preferences--perhaps buying used cars, rather than new ones.

If a family has one car loan, instead of two, it would free up a significant amount of money to be used for savings, he said. And eliminating credit card debt will make a difference.

Farrell notes that if a person eliminates $15,000 in credit card debt, with an 18 percent interest rate, it would free up $4,105 a year to save.

Eliminating debt might seem overwhelming, but if you put together a plan and are disciplined, you can make a difference. Try Internet calculators to understand what debt is doing to you--not only your ability to save, but also your ability to buy what you want. If you try the "How much do I owe?" calculator at, you will see that $9,000 in credit card debt at a 18.9 percent interest rate would take 30 years and $26,215 in total interest to pay off if you made only minimum payments--starting with $180.

Although many people resist budgeting, financial planners say understanding where your money is going is essential.

Otherwise inertia sets in and you don't realize that you are spending money on items that aren't even fulfilling to you. If you don't create a formal budget, consider writing down every purchase you make during the next couple of weeks--everything from a trip to the vending machine to the clearance rack. After two weeks, look at that list, along with your latest credit card bill. Ask yourself which of the items truly gave you pleasure. Cut out those that didn't, add up their value, and devote that amount as extra payments on your credit card bills.

Meanwhile, make sure you aren't tricking yourself. Too often people pay more toward their cards, but also continue to run up additional charges. This is not progress. The key is to increase your monthly payments, and add nothing new to the balance.

If you move the balances left on your cards to lower-interest or zero-interest cards without paying a transfer fee, you can eliminate the bills sooner because you will be paying the principal, not interest.

But make sure you don't incur a transfer fee, which can run up to 4 percent. And once you have a lower-interest card, don't use that as an opportunity to make smaller monthly payments. Your goal should be to make higher payments than you have to--higher payments than you previously paid, even if your cards don't require it. At you will be able to see how long it will take to get rid of your debts while making specific payments.

If you have good credit, and want a lower interest rate on an existing card, call your card company and request a lower rate. They often will oblige you--especially if you comparison shop first. According to, the average on platinum cards is currently 10.17 percent.

As you pay down debt, credit counselors say you will have better control if you have only two credit cards. They also suggest paying off the card with the highest interest rate first.

If its balance is higher, you may not feel like you are making much headway, even though it's a sound strategy. If you need to give yourself positive reinforcement, pay off the card with the smallest balance first.

Once you have paid off one card, don't ease up on your payments. When that balance is gone, devote the entire payment you were making on the old card to the remaining card. That way, the sum of your debt payments will remain constant. At that point, you will start to see the remaining card's balance dwindle quickly.

When the debt is gone, start moving every penny that you were previously providing to credit cards to your 401(k) or individual retirement account. And every time you get a raise, devote a portion to your retirement savings.

Because of the debt setback, you might not average the 12 percent rate Farrell suggests for all of your working years, but you will position yourself to catch up.
