Retiring under a mountain of debt? Here’s what you can do
Retiring may mean the end of the 9-to-5 world, but it doesn’t end financial worries, especially if you’re in a lot of debt. Not all retirement debt is a cause for major stress, but if you have high-interest debt, you definitely want to make a plan before leaving the workforce for good. Start by following these steps.
1. Determine what you owe
In order to develop an effective debt repayment strategy, you need to take stock of your situation. Make a list of all your debts, then research the balances for each and the interest rates. You should be able to find this information through your online bank or credit card accounts. Otherwise, you can contact the lender.
Put your debts in the order that works best for you. Putting the highest interest rate first is usually the smartest way to deal with the situation if you want to get out of debt quickly. But some people may prefer to eliminate a few small debts from their list before moving on to larger ones.
2. Create a debt repayment plan
Once you know the order in which you want to tackle your debts, figure out how you’re actually going to get out of it. You may be able to find a little extra money each month by changing your budget and reducing discretionary purchases. But when that’s not possible, you may need to resort to other tactics.
For example, if you have credit card debt, you can try a balance transfer card. This temporarily halts the growth of your balance to help you make further progress towards paying off your debt. Or you can try a personal loan. It’s basically swapping one type of debt for another, but it might be a smart move if you have credit card or payday loan debt that might otherwise swell out of control.
Don’t worry so much about low-interest debt, like a mortgage payment. If you’re able to repay that before retirement, that’s great. But this type of debt isn’t as important as some of the other types discussed here because it often has predictable payments and low interest rates.
3. Rethink your retirement plan
Now that you know how much debt you have and how you plan to pay it off, you should be able to determine approximately how long you will need to be debt free. If you’re about to retire, it’s important to review your retirement strategy to make sure your budget can accommodate paying down your debts.
If you’re worried about running out of savings too soon, you might try cutting back on your retirement expenses. Or you might consider delaying retirement or transitioning into retirement slowly, perhaps working part-time for a while before quitting for good. You can also open a side business that is more in line with your hobbies if you don’t want to continue working at your regular job.
Again, you don’t need to have all your debts paid off to retire comfortably. If you have a regular monthly debt payment built into your retirement plan, paying it off throughout your retirement shouldn’t cause you any major problems.
But be honest with yourself. Delaying retirement or cutting spending might not seem like fun, but it’s a better solution than letting your debt continue to spiral out of control and deplete your savings too soon.