Can Mishandling Your Credit Endanger Your Retirement?

As early as your late 40s, you might begin to start seriously thinking about just how prepared you are to retire on time, as you may have been planning for decades. At that point, it’s time to bear down and really start to get your finances in order for the next 15 years or so as you make the final push into your mid-60s and, hopefully, a relatively secure financial future.

However, one thing that many consumers may not do at this time, and which can seriously endanger their ability to retire on time with all their financial ducks in a row, is to address whatever credit problems they might have built up over the previous years of borrowing. Those who are in Generation X and within a decade or two of retirement have had a long time to build up outstanding balances on many types of financing — auto loans, mortgages, credit cards, and so forth — and, unfortunately, to build up bad credit habits. For instance, relying to heavily on credit in their everyday lives, taking on loans that are just outside what they can reasonably afford, and other issues often plague people in their 40s and 50s who should at that point be turning a more watchful eye toward their retirement planning.

It is for this reason that anyone who is approaching their 50s may want to set aside some time to take stock of where they stand as far as their credit is concerned, and perhaps assess what mistakes or iffy habits they need to turn around as a means of shoring up their situations.

How mishandling borrowing can affect you before you retire

When you’re approaching your retirement age it might be wise to start increasing the amount of money you’re contributing to your various savings vehicles, such as 401(k)s or IRAs you’ve had for years. Older workers tend to have higher salaries anyway, so you may be able to put more money toward those accounts without feeling too much of a pinch. The more you are able to put into savings in this way, the better off you will be down the road. But one issue that might hinder your ability to sock away as much money as possible in this regard is if you have massive debt payments still due, and in particular those for credit cards. If you’ve handled things properly, you might be approaching the point at which you will no longer have to worry about mortgage payments every month, and it might be smart to make sure your car is paid off as soon as possible too.

However, when it comes to your credit cards, that’s a type of balance that can pose a bigger threat to your retirement savings. For one thing, if you owe a large amount of money on these accounts, that will necessitate larger monthly payments, which in turn take away money you could be contributing to your retirement. Further, because these balances accrue interest charges at a far more rapid rate than other standard types of financing — thanks to interest rates that can be as much as quadruple those for a mortgage — the necessity to pay them down as quickly as possible, through larger monthly contributions for a shorter period of time, might become all the more important.

What happens when you carry debt into your retirement?

Of course, not everyone is successful in their efforts to pay off all their balances and enter their retirements debt-free. If this happens to you, it once again might be wise to try to prioritize cutting into those obligations quickly. Once you retire, you’ll probably have to live on a fixed income that is slightly, or in some cases even significantly, less than what you were used to receiving when you had a job. That means the amount you’re going to have to start putting into your debt will then make up a larger portion of the money you have to live on, and that can make things far more uncomfortable for you when you’re supposed to be in your golden years.

As you approach your retirement, it might also be wise to keep close tabs on your credit standing to make sure everything is as it should be. For example, ordering copies of your credit reports and looking them over closely to ensure that you’re not being adversely affected by any unfair markings, which can lower your credit scores, is often a wise course of action. If you notice any such entries marring your standings, you might want to work with a credit repair company, as this may allow you to get the issues resolved far more quickly than you might have been able to achieve by yourself.

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