Most people spend the better part of five decades saving enough to live on a fixed income in retirement. When retirement comes, the last place you’ll want to spend your hard-earned and saved funds is paying off debt. Not only can it put a strain on your finances, it could harm your overall credit if you have trouble keeping up with regular payments. So if you’re nearing retirement (or even if you’re not), you should strongly consider paying down your debt before you get there. Here are three types of debt to focus on paying down before retirement:
The average 55- to 64-year-old American carries over $8,100 on average in credit card debt. The next age group, those 45 to 54, carries even more — just north of $9,000 on average. And the age group representing new retirees (65 to 69) carries over $6,800 in credit card debt.
People caught in a cycle of credit card debt often have trouble getting out of it due to high interest rates. And if you’re spending faster than you’re able to pay, that debt quickly adds up. Get ahead of it now before you have to worry about paying it off on fixed income. Start by paying off your credit cards with the highest interest rate first, and make sure to pay more than your minimum monthly payment. It may also help to create a budget and stick to using cash to keep from adding to your credit card balance.
Recent trends show that seniors owe more mortgage debt (and have accrued less home equity) than ever. Between 2001 and 2011, the median mortgage debt for seniors increased by a whopping 82 percent, from $43,300 to $79,000. And more seniors are bringing that debt into retirement. Over that same timespan, homeowners 65 or older with mortgage debt increased from 22 percent to 30 percent.
Depending on how many years you have left on your mortgage, refinancing could make sense for you. You may be able to secure a lower interest rate or get rid of mortgage insurance. Then you can take the amount you’re saving and make larger payments to lower your mortgage debt more quickly.
You might be surprised to learn that student loan debt has become problem for retirees. Between 1989 and 2013, the average student loan debt carried by pre-retirees increased from $600, to a shocking $8,000. As of 2013, citizens 65 and older owe a combined $18.2 billion — yes billion! — in student loan debt. And the fastest-growing demographic of student loan borrowers in the United States is citizens 60 and older.
If you’re on track to carry student loans into retirement, consider ways to start earning extra income, whether it’s starting a side hustle like driving for Uber, selling items on eBay or creating your own small freelancing business. And get on a budget that allows you to put more towards your loans.
If you’re drowning in debt and see no way out before retirement, a credit repair expert may be able to help develop a plan to pay down your loans, pay off your debt, and fix your credit. Regardless of how you tackle it, make it a priority to pay down your debt before retirement so that you’re not opening yourself up to poor credit in your golden years.
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