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How to tackle debt when you’re preparing for retirement

Photo Credit: Kalawin

Debt can be financially crippling at any age. However, it can be unusually heavy on you during retirement. So by all means, try getting into retirement debt-free. Debt can be a hindrance to so much. Retirement is quite crucial because there is a reduced flow of income, which could make paying off debts a bit hard. It’s paramount to prioritize your debts before anything else.

So how do you tackle debt when you are preparing for retirement?

Know how much you owe

Before you even know how to tackle debt, you need to know how much you owe in loans. Do you have a mortgage, student loans, auto loans or credit card debt? Tally all of them and know the figures you intend to work with.

Once you know how much you owe in debt, it’s easier to work on how to repay them.

Don’t take on any debt if you don’t have plans to repay it

There are times where there are emergencies, and you may feel you need to take a quick loan. However, if you are about to retire, it’s advisable not to take on any new debt if you can’t accommodate it. How do you plan on repaying it? Can your current income enable you to repay the loan? If not, figure out how to work things out without taking the loan.

Pay off consumer debt first

It’s normal to have debt even in your retirement. However, working towards reducing the debt before you retire is crucial as it reduces financial strains. Consumer debt is common, and it is quite easy to sink in debt in such because it is considered high-interest in most cases.

One of the most common consumer debts is credit cards. It is quite easy for your credit rating to drop over missed credit card payments. Your credit score is crucial to getting better mortgage interest rates and other loans. In the case you need to repair it, Crediful has a solution for improving it.

Personal loans are also another source of consumer debt. You’ll find some that charge high interest and can accrue when you miss payments. Start with paying off any high-interest debt as quickly as possible.

Avoid cosigning loans when nearing retirement  

As much as this will make you feel guilty, being a cosigner for a family member when you are about to retire is quite risky for you. When they don’t pay the loan, you’ll be responsible for the payment which could increase your debt load.

It will also affect your credit score. You may have worked on it for a long time to make it high, and a loan which you didn’t borrow but rather cosigned could be the downfall.

Consider your options when tackling debt

When you are paying off debt, you have options on how to go about it. There are two methods you can use to repay.

  • Avalanche method- this involves making minimum payments to all the loans except the one with high-interest rates. Pay the much you can get every month. Once you pay all the rest of the loans, you can now focus on the one with a high-interest rate.
  • Snowball method-if you choose this strategy, you pay the minimum payment for all debts, unlike the avalanche method where you live out the high-interest rate loan. You focus on the smallest balance first, and as you gain momentum, you pay off the second smallest debt. Much like a snowball rolling down the hill, you end up paying off all debts.

Get ways to earn more money

After analyzing the debt situation and started paying them off, you also need to know how to pay fast. You ideally want to pay off while still thinking about retirement. How about getting a way of earning extra income?

Look for investment options that could give you some extra money. When looking at investment options, consider the low-risk ones because you can’t afford to lose any money. You can find a savings account that earns interest. Alternatively, you can find a real estate option where you pool resources with other investors and invest and get returns.

The idea is looking for investments that are also safe that will enable you to pay the debt and at the same time, save for retirement.

Get a second job or find online jobs depending on your expertise. Remember, even when you get extra income, your lifestyle should not change. People tend to have more expenses when there is an increment. Try to live below your means to make sure you pay your debts before retirement.

Retirement should be stress-free with no debts. However, even if you find yourself in debt after retirement, try and prioritize them. Debt is normal, and you shouldn’t beat yourself over it; figure out how to go about it and remain positive.

Augusta Health Augusta Free Press Kris McMackin CPA
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Augusta Free Press