Special to the Financial Independence Hub
Carrying debt into retirement can ruin your golden days. You will most likely have a limited income after retirement. Though you can boost your Social Security income by taking the proper steps, your spending may rise yearly due to inflation, causing your budget to collapse. The burden of debt and the high expense of medical bills can wreck your retirement.
According to a CNBC report, the total debt burden of America’s senior citizens has increased by 543 per cent in the last two decades. 70% of baby boomers are in credit-card debt and are unsure how they can get out of it. It is recommended to pay off your obligations as soon as possible and enjoy your golden years. Repaying your debts during retirement is always a good idea. But how will you go about it? Here are some of the ways to repay your debt in retirement so that you can enjoy your golden years.
1.) Sort your debts by priority
The first stage in debt management in retirement is prioritizing which bills to pay off first. So, make a list of all your loans, including their interest rates and remaining balances. Unsecured debts, such as credit cards, typically carry high-interest rates because no collateral is required. I recommend that you begin paying off loans with the highest interest rates first, which will help you save money in the long term. Furthermore, unlike student loans or mortgages, you cannot deduct interest payments from your tax returns on unsecured debts.
It is preferable to pay off unsecured obligations first, as they are not usually tax-deductible.
2.) Seek professional debt assistance
Are you drowning in high-interest unsecured debt? If this is the case, you may be working hard to repay your obligations but cannot do so due to the constant high-interest rates. In that case, you can seek professional assistance by contacting a reliable debt relief business. The company’s debt advisers will examine your debts and develop a reasonable payback plan based on their findings. You can enroll in a credit card consolidation process to repay your huge credit-card debt. Settling debts can be possible under the guidance of a professional debt relief company. They will negotiate with your creditors to lower the excessive interest rates. Once your creditors have agreed, you can begin making single monthly payments for all of your debts. In this manner, you may pay off your unsecured obligations without worrying about coordinating multiple payments. You can also save money on interest payments because your debts’ interest rates will likely be reduced.
3.) Examine your budget again
Hopefully, you have a budget to keep a proper spending plan and preserve money for your financial well-being. The more you put into your monthly loan payments, the faster you’ll be debt-free. As a result, you must save more to increase your monthly loan payments.
To do so, go over your budget and identify places where you may decrease costs and save money. You can save money on things like eating out, entertainment, cable TV subscriptions, etc. You can save a significant amount of money to put towards your monthly debt payments.
4.) Follow your preferred debt repayment plan
You can use any debt payback method, debt snowball or avalanche. The debt snowball strategy requires prioritizing the debt with the lowest outstanding sum first. At the same time, you must make minimum payments on all of your other loans. After you have paid off that loan, you must focus on the debt with the second smallest outstanding balance, and so on.
This approach must be repeated until you are debt-free. The most significant advantage of the snowball method is that it allows you to stay motivated throughout your debt repayment journey. Because repaying debt with tiny outstanding balance amounts will likely take less time, you will feel the honor of becoming debt-free in a short period. However, if you prioritize loans based on their outstanding balance amounts, you may have to pay more in interest payments.
First, you must list the debts with the highest interest rate in the debt avalanche approach.
You must also make minimum payments on your other loans. After you have paid off that loan, you must target the debt with the second-highest interest rate, and so on. This cycle must be repeated until you are debt-free. You can save money on interest payments by using the debt avalanche strategy. Furthermore, if you have a large outstanding balance with the highest interest rate, the avalanche method may be your best option for debt repayment. However, using the avalanche method may result in a lengthier repayment period. As a result, you may lose patience and find it challenging to stay motivated during your debt repayment journey.
5.) Consider a side hustle
After retirement, you can start a side hustle to generate some extra money, then put it towards debt repayment. Because the more you pay in monthly payments, the sooner you will be able to pay off your obligations. So, I recommend looking for an online part-time job that fulfills your passion and allows you to earn money. Furthermore, look for a side hustle that requires the skills you already have: because learning new skills at this age might be difficult. A part-time job will keep you from being bored after retirement. You can also make extra money to help you pay off your debts faster.
6.) Refinance your mortgage
Refinancing is replacing your old loan with a new one with a lower interest rate. You must have at least 20% equity in your property to be eligible for refinancing. Furthermore, you need to have a credit score of 600 or higher. Lower interest rates are the primary benefit of refinancing your mortgage. The general guideline is that refinancing is a brilliant idea if you can reduce the interest rate on your current loan by 2%. You will eventually have to pay less for your monthly mortgage payments. Furthermore, if you have an adjustable-rate mortgage (ARM), you can refinance a fixed-rate mortgage. You can protect yourself from rising mortgage rates by doing so. As a result, refinancing can help you pay off your mortgage faster and save money. You can use the money you saved to pay off other debts if necessary. As a result, refinancing makes debt management more manageable, especially after retirement.
7.) Sell your assets
Assume you have a large property and are unable or ineligible to refinance your mortgage in retirement. In that instance, you can sell your property and relocate to a less expensive location with fewer mortgage payments and less maintenance. If you have any other debts to pay off, you can utilize the money from the sale of your property to do so. Furthermore, you might sell unwanted furniture or technological items to amass a substantial sum of money for debt repayment.
Getting out of debt in retirement is not impossible. Following certain tactics will assist you in doing so. If you are going to retire, keep an eye on your debt while you plan for retirement and attempt to pay it off before you reach your golden years. This way, you will have no debt when you retire.
Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in California. He has contributed to publications such as Entrepreneur, All Business, US Chamber, Finance Magnates, Next Avenue, and many more.