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5 Tips to Manage Your Debt in Retirement

5 tips to manage your debt in retirement

Editor's note: The following post has been contributed by Andy Masaki. Andy is a blogger and financial writer associated with the Oak View Law Group. He is a debt expert and a member of several online forums, where he shares his advice as well as tips to lead a financially independent life.

A recent CNBC report has revealed that the total debt burden of older adults in our country has ballooned by 543% in two decades. Isn’t it shocking enough?

Carrying debt into retirement can become an obstacle to your dream of relaxing during your golden years. Because after retirement, you are likely to have a limited income. Though you can increase Social Security payments by taking necessary steps, expenses may go up every year due to inflation, resulting in blowing your budget.

That means precisely, you are likely to struggle with your finances if you carry debts into retirement. So, it’s better to pay off your debts at the earliest and enjoy your golden years.

Here are some of the best possible tips that can help you manage your debt in retirement.

Prioritize Your Debts

The baby steps to manage your debts in retirement is to prioritize what debts to pay off first. So, list all your debts along with their interest rates and the remaining outstanding balance amounts. Usually, unsecured debts like credit cards have high-interest rates as you don’t need to keep any collateral.

So, I would suggest you start paying off debts with the highest interest rates first as it will help you to save money in the long run. Besides, you can’t deduct the interest payments that you have made on your unsecured debts from your tax returns, unlike student loans or mortgages.

So, it’s better to get rid of unsecured debts first as they are not usually tax-deductible.

Opt for Professional Help

Are you overwhelmed with high-interest unsecured debts? If so, you might be trying hard to repay your debts but you can’t keep up with the payments due to their incessantly high interest rates.

So, in that case, you can opt for professional help by consulting a reputable debt relief company. The debt consultants of the company will assess your debts and based on that, they will chalk out an affordable repayment plan. Also, they will try to negotiate with your creditors to reduce the high interest rates.

Once your creditors agree, you can start making single monthly payments for your multiple debts.

This way, you can pay off your unsecured debts with ease as you won’t have to worry about managing multiple payments anymore. And you can save money on interest payments, as the interest rates of your debts are likely to be reduced.

Start Doing a Side Hustle

Well, you can start doing a side hustle after retirement to earn some extra money and dedicate these funds towards your debt repayment. Because the more you pay for your monthly payments, the faster you get rid of your debts.

So, I would suggest you look for a side gig that fulfills your passion and helps you earn money. Try to find a side hustle that requires the skill set you already have. Acquiring new skills at this age can be a cumbersome task.

Doing a side hustle that you enjoy won’t let you suffer from post-retirement boredom. And you can also earn some extra money to pay off your debts faster.

Refinance Your Mortgage

Refinancing means repaying your existing loan with a new one, preferably with a lower interest rate. To be eligible for refinancing, you need to have at least 20% equity in your home. Besides that, you should have a credit score of around 600 and above.

The biggest advantage of refinancing your mortgage is lower interest rates. One rule of thumb says that refinancing can be a good idea if you can lower the interest rate of your current loan by 2%.

Eventually, you will have to shell out less for your monthly mortgage payments. Besides, if your mortgage is an adjustable-rate mortgage (ARM), you can refinance it to a fixed-rate mortgage. By doing so, you can protect yourself from the rising mortgage rates in the future.

So, refinancing can help you pay off your mortgage with lower interest rates and save money. If needed, you can use these saved dollars for making other debt payments. Refinancing makes it easier for you to manage your debt, especially after retirement.

Try Downsizing Unnecessary Assets

Let’s say you have a large home and you are not willing to or ineligible for refinancing your mortgage in retirement. In that case, you can sell off your home and shift to a less expensive place having lowered mortgage payments and low maintenance. If you have any other debts to pay off, you can use the proceeds from selling your home.

Besides, you can sell off any unnecessary furniture or electronic items to accumulate a decent amount of money for paying off your debts.

So, the bottom line is, getting out of debt in retirement is not at all a difficult task. All you need to do is follow some effective strategies that can help you to do so. I hope that the above 5 tips will help you to manage your debt in retirement and enjoy your golden years.

If you are about to retire, watch your debt as you plan for retirement and try to pay off your debts beforehand.

Author: Ian

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