10 Tips To Pay Off Debt in Retirement

Pay Off Debt During Your Retirement Years

Most personal finance experts recommend eliminating all debt before you retire. However, if you’re retired and still carrying debt, managing it effectively can help you enjoy a more secure and stress-free lifestyle in your golden years.

Baby Boomers carried an average consumer debt of $92,619 in 2025. Although this is a 2% decrease from the previous year, rising costs of living and inflation continue to make it difficult for many seniors struggling with heavy debts. 

Fortunately, a variety of resources are available to help seniors enjoy a debt-free lifestyle. Debt relief strategies like debt consolidation and settlement can help. Read on to explore your options for financial success in retirement. 

What Is Retirement Debt?

Retirement debt is any money you owe to lenders, such as credit card debt, health care bills, personal loans, auto loans, and mortgages.

American households had an average credit card balance of $6,523 in 2025. While this number may not seem outrageous, if you still make mortgage payments and have other debts, it can be challenging to pay off all of these obligations, especially living on a fixed retirement income.

Not All Kinds of Debt Are Equal

Most financial experts consider certain debts effective because they provide something in return, such as a comfortable home or a car loan used for reliable transportation. Determining which debt you carry can help you decide on the right course of action for dealing with retirement debt.

• Good Debt
  Good debt is typically comprised of low-interest, fixed-rate secured debt used to finance appreciating assets, such as mortgage loans, or to invest in financial stability. This kind of debt can provide long-term value by supporting wealth-building opportunities or income growth.  
• Bad Debt
  Bad debt usually consists of high-interest (often variable-rate) unsecured debt used for purchasing consumables, retail products, vacations, or other non-essential items and services. Essentially, bad debt is any debt used to finance something that doesn't provide any kind of return on investment. 

10 Tips for Paying Your Debts in Retirement

Whether retirement is looming far off on the horizon or already a reality for you, it's important to manage retirement debt as soon as possible. Use the following tips to strategize your best financial future:

1. Stop Accumulating More Debt

One of the most important steps in tackling retirement debt is to stop accumulating more debt. Purchasing habits can be tough to break, and for some, the urge to spend may feel like an ongoing challenge.

Create a budget to review your retirement expenses and income, determining what you can afford without having to rely on credit cards. Adhering to a strict budget allows you to focus on repaying your debt without ignoring your financial necessities.

For example, if your budget reveals that you have $1,000 left after your expenses each month, temporarily forgo discretionary expenses to make extra debt payments.

2. Reduce Your Spending

Another reason why making a budget is so important is that it shows you where you spend most of your money. Review each expense category to identify where to trim costs.

Review essential costs like groceries and rent, plus any discretionary spending. Reduce non-essential expenses, such as online shopping and dining out. While these may seem like small expenses, they can add up quickly. 

Shop insurance policies, phone and internet services, and other providers to find the best deals or cost-effective plans. 

3. Find Ways To Earn an Extra Income

One of the best ways of dealing with retirement debt is by finding a new income stream to supplement what you already receive. Consider taking on a part-time job long enough to pay off your debt. While this may not be an ideal way to enjoy retirement, it can help you avoid draining your savings. 

Another benefit of working during your retirement is that it may give you access to health insurance if you’re not already enrolled in the U.S. Medicare program. If you're already on Medicare, this extra income can help you pay for Medicare deductibles, out-of-pocket medical expenses, and/or Medicare Supplement insurance policy premiums. 

Look for ways to turn your work experience and talents into a side hustle. Consider starting a small consulting business from home or creating items to sell online or through local venues.

4. Choose To Downsize

Consider downsizing your home to manage bigger expenses, such as mortgage debt, home insurance, and property taxes.

After downsizing, you’ll no longer have to worry about maintaining a large property or paying for costly repairs on a large property. Consider a smaller condo that's comfortable and affordable. Just don't forget to factor in condo HOA fees or rental fees before you decide to move.

5. Reorganize Your Finances with Debt Consolidation

If you have different types of debt, consolidating them into a single payment can help lower your monthly costs. 

Those with “fair” to “good” FICO scores (680 or higher) may qualify for a low-interest debt consolidation loan. This process allows you to combine high-interest debts into a single loan with a lower fixed interest rate and more manageable payments.

Another option is a balance transfer credit card with a 0% introductory APR that allows you to consolidate debt interest-free. However, you must pay off the balance before the promotional period ends (typically 12 to 18 months) to avoid high-interest charges.

Keep in mind that any remaining balances left on the card after the 0% rate period ends will start accruing interest at the card's standard annual percentage rate (APR), which is often 24% or higher.

A debt relief company can help you find the best debt consolidation loan for your specific needs. 

6. Use Retirement Funds Selectively To Pay Debts

Using your 401(k) to pay off debts is an option, but it comes with a few risks. When you withdraw funds from your retirement accounts, you lose that portion of your nest egg, plus any future market gains you may earn on that money.

You may also face tax consequences on withdrawals from your pre-tax retirement accounts. If you are taking money out of your Traditional 401(k), 403(b), or 457 account or from your Traditional IRA, you’ll likely get a large tax bill. 

Withdrawals from Roth-based accounts are generally tax-free if you've met the five-year rule and are over 59 ½. However, taking out earnings early could trigger taxes and penalties.

Weigh all the pros and cons and seek advice from a fully licensed and experienced financial advisor or Certified Financial Planner (CFP) before you consider this option.

7. Consider Debt Settlement

If you carry over $10,000 in high-interest, unsecured debt, you may want to consider debt settlement. A professional debt settlement company can negotiate with lenders on your behalf to compromise on a lower payoff amount.

Debt settlement is a good alternative for those with a high amount of unsecured debt, such as credit cards and medical debt, who are at risk of defaulting or bankruptcy. Debt settlement can reduce your overall debt by 50% before fees, allowing you to pay off debts faster and save money in the process.

For instance, if you owe $12,000 in credit card debt and can settle it for $7,000, the lender will forgive the remaining $5,000. 

8. Use a Reverse Mortgage

Homeowners aged 62 or older may qualify for a reverse mortgage. This option allows you to borrow against your home equity, and repayment of any borrowed amount is not required until you move or sell the house.

The money you no longer pay towards mortgage payments can then be used to pay your other debts. In case of an emergency, you can even apply for a reverse mortgage home equity line of credit (HELOC).

9. Seek Credit Counseling

If you’re overwhelmed with all the options available and not sure where to start, many nonprofit and for-profit companies offer credit counseling services that can help you with budgeting, debt repayment, and money management.

10. File for Bankruptcy

Bankruptcy has serious, long-term consequences for your credit profile and credit scores. However, it may make sense for seniors with substantial debt who have tried other debt-relief alternatives to no avail.

Bankruptcy can damage your credit reports and FICO scores for up to 10 years after you file. Your retirement accounts and Social Security will be protected when you file for bankruptcy. Depending on your personal situation, consumers typically file for Chapter 7 or Chapter 13 bankruptcy.

Consult With a Professional for Retirement Debt Relief

Through counseling, budgeting, and effective debt relief programs, you can repay your debt and regain financial stability—even in retirement. Consult with a credit counselor or a fully licensed and experienced Certified Financial Planner (CFP) for personalized advice based on your financial situation.

TurboDebt® Helps Retirees Get Out of Debt

If you are dealing with debt in retirement, connect with TurboDebt® for a free consultation today. Our team can provide expert guidance and financial planning to help you pay off your debt faster.

With over 20,000 positive reviews on Google and Trustpilot, our clients prove we're a trusted debt relief partner. 

It only takes a few minutes to find out if you qualify for our customized debt repayment plans. Contact the team at TurboDebt today to start your journey toward financial freedom in your golden years.