Retire Your Debt Before You Retire

Written by , June 13, 2011

Retire Your Debt Before You RetireIn the movies, retirement is a carefree time, filled with vacations and leisure activities. In real life, it’s not always that simple. Financial problems are quite common among retirees, because they usually have substantially less income to work with. For those who retire in debt, making ends meet can be very difficult.

Retiring debt-free can make your retirement years less stressful and more enjoyable. It will leave you with more disposable income, allowing you to do more of the things you looked forward to doing when you no longer had to work.

If you like the idea of eliminating your debt before you retire, here’s some advice about how to do it.

  • If you plan to retire within the next decade or so, avoid taking on new debt. If you already have enough debt that you’re concerned about paying it off before you reach retirement age, adding to it isn’t good practice. Instead of getting a loan or using your credit cards, save up for big purchases and pay cash if at all possible.
  • Consolidate high-interest debt. Some credit cards and loans come with insanely high interest rates that can add years to the time it will take you to pay them off. Look for low-interest consolidation loans or high-limit credit cards that allow balance transfers. This will likely lower your monthly payment as well as the overall interest paid and the amount of time it takes to pay off your debt.
  • Carefully consider refinancing your mortgage. It may or may not save you money and help you get out of debt depending on your individual circumstances. If you only have a few years of payments left, you’re probably better off to keep your current mortgage and make extra principal payments. If you still have many years left, you could benefit from refinancing for a shorter term. And if you have an adjustable rate mortgage, refinancing with a fixed rate is almost always a good idea.
  • Put every penny you possibly can toward eliminating your debt. Cut unnecessary items from your budget and put the proceeds toward your highest interest debt first. Once you’ve paid that in full, move on to the debt with the next highest interest rate. You may have to make some sacrifices in the short term, but the payoff will be greater peace of mind in your golden years.
  • Consider a reverse mortgage. Those with a lot of non-mortgage debt can leverage their home equity by taking out a reverse mortgage. Those who have reached retirement age generally qualify regardless of income or credit rating, because no repayment is required. The only catch is that your heirs will have to either repay the loan or sell your home when you’re gone.
  • Too much debt is bad enough when you’re working. Once you’re retired, it can be detrimental to your finances. But with some determination and planning, you can pay your debts off before retiring.

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