10 Tips To Pay Off Your Retirement Debt
7 MIN READ
Published April 07, 2023 | Updated October 02, 2023
Most personal finance experts recommend that you should eliminate all your debt before you retire. But if you are already retired and are still living with debt, you need to deal with the situation promptly so you can enjoy a good living in retirement.
Baby boomers had an average of $97,290 in debt in 2020. The rising cost of living only contributes to the problem.
Starting your retirement with substantial debt can be worrying, but if you have a plan in place to repay your retirement debt, you’ll have a better chance of enjoying your golden years.
Fortunately, there are many resources available to enjoy a debt-free lifestyle. Debt relief strategies like debt consolidation and debt settlement can help.
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.
The average credit card balance was $5,910 in 2022. Americans over 50 years of age also had $336 billion in student loan debts in 2020.
Not All Kinds of Debt Are Equal
Good debt is low-interest debt that is usually used for financing appreciating assets such as mortgages.
Bad debt usually carries high debt and is used for purchasing consumables such as vehicles, electronics, dining out, and food.
Determining which debt you carry can help you determine the right course of action for dealing with retirement debt.
10 Tips For Paying Your Debts in Retirement
Whether retirement is looming on the horizon or already a reality for you, you need to deal with retirement debt at the earliest. Stop living with financial stress with these 10 tips:
1. Stop Accumulating More Debt
One of the most important things to do if you want to tackle retirement debt is to stop gaining more debt. Spending can be a difficult habit to break.
Create a budget to review your expenses and income and see what you can afford without having to rely on credit cards.
Stick to this budget. This will allow you to focus on repaying your debt without ignoring your financial necessities.
2. Reduce Your Spending
Another reason why making a budget is so important is that it will give you an overview of where you spend your money the most. Review each expense category to see where you can trim costs.
Review your insurance policies, groceries, and discretionary spending. Cut down on non-essentials such as shopping and dining out. While these may seem like small expenses, they can add up quickly.
3. Find a Way to Earn an Extra Income
One of the best ways of dealing with retirement debt is by finding a new income stream to supplement your retirement income. Consider starting a part-time job.
While this may not be an ideal situation for your retirement, it can help you pay off your debt without dipping into your retirement savings. Another benefit of working in your retirement is that it may give you access to health insurance.
Consider downsizing your home to manage some of the bigger expenses you may be dealing with, such as mortgage debt, home insurance, and property tax.
Other than the financial benefits, downsizing offers added benefits. You’ll no longer have to worry about maintaining your large property and won’t have unanticipated expenses related to your home.
Find a smaller condo that is comfortable and affordable. Carefully consider condo HOA fees or rental fees before you decide to make a move.
5. Use Retirement Funds to Pay Off Debts
Using your retirement funds to pay off your debts comes with a few risks. When you withdraw funds from your retirement accounts, you lose your nest egg and any future market gains. If you withdraw money before you are 59 ½, you can also face a penalty.
There may also be tax consequences involved for withdrawals. If you are taking money out of your 401(k) account or traditional IRA, you’ll likely get a large tax bill. Weigh all the pros and cons before you consider this option.
6. Debt Consolidation
If you have multiple types of debt, one way to reduce your monthly payments is with debt consolidation.
If you have good credit, you can apply for a low-interest debt consolidation loan. This will allow you to combine multiple debts into a single loan with more affordable debt payments and a lower interest rate.
If you are eligible, 0% balance transfer credit cards can also be used for consolidating debts. You’ll need the discipline to ensure that you pay off the entire balance before the 0% APR introductory period ends.
7. Use a Reverse Mortgage
A reverse mortgage can be used by those over the age of 62. This option allows you to borrow against your home equity, and payments are not required until you move or sell the house.
You can free up some money by replacing your mortgage with a reverse mortgage. 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.
8. Seek Credit Counseling
If you are overwhelmed with all the options available and not sure where to start, seek credit counseling.
Many nonprofit and for-profit companies offer credit counseling services that can help you with budgeting, debt repayment, and money management.
Your credit counselor can review your budget and can even enroll you in a debt management plan to help you pay off your debts faster.
9. Consider Debt Settlement
If you have over $10,000 in high-interest debt, you may want to consider debt settlement. A debt settlement company can negotiate with your lenders on your behalf to accept a lower settlement amount.
If you have a high amount of debt and are at risk of defaulting or bankruptcy, this is a good solution.
Debt settlement can reduce your overall debt by 50% before fees so you can pay it off faster and save money in the process.
10. File for Bankruptcy
Bankruptcy has serious consequences, but it may make sense for seniors with a lot of debt. Although it can damage your credit score, you may not be worried about applying for future loans as a senior.
Your retirement accounts and Social Security will be protected when you file for bankruptcy. Depending on your personal situation, you may be able to file for Chapter 7 or Chapter 13 bankruptcy.
With counseling, budgeting, and effective debt relief programs, it is possible to repay your debt even if you are retired. Consult a credit counselor or a certified financial advisor (CPA) for personalized advice based on your financial situation.
If you are dealing with debt in retirement, connect with TurboDebt for a free consultation today. Our team can offer counseling, consultation, and financial planning services to help you pay off your debt faster.