Even the best retirement plans that have been carefully crafted over a lifetime can severely suffer from outstanding debt. As a result of the higher cost of living and consumerism, this day in age it avoiding debt is nearly impossible.

With each passing year, more and more Americans are diving into the debt pool as they struggle to cover their daily expenses and make ends meet. If your debt situation is particularly severe, you may be asking yourself how you can improve your situation. The first thing to do to get rid of debt is to admit that you are facing a serious problem that needs your full commitment in order to resolve it.

Here are several ways to effectively settle outstanding debts to ensure it doesn't impact your retirement plans:

Establish a Budget and Track It

Creating a proper budget is a great way to analyze and plan finances. By allocating a set amount of money towards a specific expense per month, your expenses can be monitored more strictly. Proper budgeting is key to allow individuals and households to create the necessary surpluses that will allow them to pay off any existing debts.

In order to create a true budget, you will need to track your expenses for at least three months. Simply get receipts for everything you purchase. Once a week or so, take some time to record your receipt into a notebook or spreadsheet. Break them down by category. Tracking tools are crucial in identifying areas of weakness in one's monthly spending habits, but an individual must take affirmative action to reverse the negative balance situation. This can be done by listing out the monthly expenses and employing necessary cutbacks on certain expenditures. Discipline is the key. Finish out your budget by including all of your monthly and yearly bills.

Once you have tracked and identified your spending, you are able to review it and see where you can reduce unnecessary spending. This will be very helpful in finding the money to pay off debt and save. One of the best ways to find money for your savings is to reduce your debt. By reducing your debt, you free up a lot of money in your monthly budget and in your future.

Laddering Debts by Interest Rate

Laddering debts is another technique used in settling outstanding debt. It involves organzing all of your current debts in a list starting with the highest interest rate to the lowest. The first step is to put each type of debt into its own category. The reason for this is that different types of debt should be treated differently. Examples of relevant categories include credit card debt, retail store card debt, mortgage, second mortgage, auto loans, and equity lines of credit. Also, if you have multiple credit cards, for example, be sure to list each one separately.

Now, next to each debt you have, write down the amount you owe and the interest rate for each one. Most likely, your credit cards will carry the highest interest rates. Then rearrange your list in order of highest to the lowest interest rate. The debt with the highest interest rate costs the most money, so this debt needs to be settled first.

By paying off the most expensive debt first, the overall debt will be reduced significantly faster. As you successfully pay down each card, you will get a feeling of accomplishment that will encourage you to keep fighting your debt monster until it is completely dead. By paying off the highest interest cards first, you will be freeing up more money each month to pay down your remaining debt faster.

Laddering also instills a sense of financial discipline that is good in tackling unresolved debts and preventing those debts from inflicting too much harm on those retirement plans you've kept in mind.

Balance Transfers

Balance transfers are a financial tool used to cut back on interest expenses while attempting to pay off a debt over several months.

Often banks provide very low rates for clients who transfer their existing unsecured debt from other banks in order to obtain their business. However, there is a catch! Such promotional rates only last for a certain period of time, for example 6 months. Nevertheless, balance transfers can lower the interest costs of an existing debt.

Balance transfers do carry their own risks. Individuals transferring balances must remember to either settle the debt after the transfer or look for another such opportunity before the lower interest on the account to which the balance is transferred expires, otherwise he/she risks paying an even higher interest rate.

Individuals using the balance transfers may also fail to address the continuous build-up of debt, thus wiping out any benefit from such a strategy. In the end, despite this cost-saving strategy, individuals end up with even more debts that impinge on savings, not to mention any future retirement plans.