We don’t normally discuss money here. But today, we are going to talk about it so that our readers can enter into a comfortable retirement by repaying debts when they leave the workforce.
A few days back, I was going through a recent CNBC report which has stated that debt among older adults in our country has skyrocketed 543% in two decades. Isn’t it shocking?
Usually, retirees have a fixed income after hitting their golden years. If they have huge debts to pay off, they will be left with very little funds. And ultimately, it will result in financial worries after retirement. So, it’s always a good idea to repay your debt during retirement. But how will you do so?
Don’t worry. Here are some of the best possible tips to repay your debt during retirement so that you can relax during your golden years.
Relook at your budget
Hopefully, you are following a budget to maintain a proper spending plan and save money for your financial well-being. Remember, the more you dedicate towards your monthly debt payments, the faster you can become debt-free.
So, you need to save more for increasing your monthly debt payments. For that, you need to review your budget and find the areas where you can cut costs and save those dollars.
For example, you can cut costs on discretionary expenses like eating out, entertainment, cable TV subscriptions, etc. by doing so, you can save a decent amount of money to dedicate towards your monthly debt payments.
Set up a repayment plan
The baby step to pay off your debt in retirement is to set up a repayment plan. For that, you need to list all your debts (except mortgages) along with their interest rates, minimum payment amounts, and outstanding balance amounts. Now, you can follow either of the two debt repayment plans, i.e, debt snowball and avalanche method.
In the debt snowball method, you need to focus on the debt with the smallest outstanding balance first. At the same time, you will have to make minimum payments on all other debts.
Once you repay that debt, you will have to focus on the debt with the second smallest outstanding balance and so on. You will have to continue this process until you become debt-free.
The biggest advantage of the snowball method is that you can stay motivated during your debt repayment journey. Because repaying debt with small outstanding balance amounts is likely going to take less time and you can feel the valor of becoming debt-free within a short time.
However, you may have to shell out more on interest payments as you are prioritizing debts based on their outstanding balance amounts.
In the debt avalanche method, you need to prioritize the debt with the highest interest rate first. At the same time, you have to make minimum payments on other debts.
Once you pay off that debt, you will have to target the debt with the second-highest interest rate and so on. You will have to repeat this cycle until you become debt-free.
By opting for the debt avalanche method, you can save money on interest payments. Besides, if you have a huge outstanding balance with the highest interest rate, the avalanche method can be the best bet for you to repay debts.
However, it may take a longer time to repay debts by opting for the avalanche method. So, you may lose patience and it may become hard for you to stay motivated during your debt repayment journey.
Postpone your retirement
You can find a part-time job in retirement and extend your earning years. By doing so, you will be able to earn a few more dollars. Eventually, it will help you to boost your monthly payments to get rid of the debt trap faster.
In this context, I would suggest you opt for a part-time job that fulfills your passion. Thereby, you will feel good about yourself and earn money too for eliminating debt.
At the same time, postponing your retirement can help you to increase your Social Security benefits. The reason being, you are likely going to receive delayed retirement credits and that can help your Social Security payments to increase by two-thirds of 1% for every month you delay your retirement till 70.
Take out a balance transfer card
A recent report by Motley Fool has revealed that in our country, people near their retirement age have the most credit card debt. If you are one of them, you may have to shell out a substantial amount from your paycheck as credit cards have high-interest rates.
So, it’s better to get rid of your multiple credit card debts before your retirement. You can transfer all your outstanding balance amounts to a new card with no or very low-interest rate. So, no worry about managing multiple debts anymore.
Usually, credit card companies offer balance transfer cards at a 0% interest rate for an introductory period ranging from about 18 to 24 months. After the introductory period ends, they will levy a variable interest rate.
So, I would suggest you repay your outstanding balance amount in your new card within the introductory period. By doing so, you can save a substantial amount of money on your interest payments. Eventually, you can repay your credit card debts faster too.
However, you need to have an excellent credit score of around 670 or higher for taking out a balance transfer card. Besides, you may have to pay a balance transfer fee of about 3% to 5% of the total amount you are transferring.
Opt for a debt consolidation program
Let’s say, you are trapped with unsecured debt like credit cards, payday loans, etc. You have tried to take out a balance transfer card but you couldn’t qualify for it due to a lack of a sufficient credit score.
In that case, is there any other way to consolidate your unsecured debts? Yes, you can consolidate your debts by consulting a reputable debt relief company. But how so? What happens if you consolidate debt through a debt relief company?
The debt consultants of the debt relief company will assess your debts along with your financial situation. Based on that information, they will chalk out an affordable monthly payment plan.
At the same time, they will try to negotiate with your creditors on your behalf to reduce the high-interest rates and waive off any late fees or penalties. Once the creditors agree, you can start making single monthly payments to the debt relief company. And they, in turn, will distribute the money among your creditors.
So, by opting for a debt consolidation program, you can bundle your multiple debt payments. Besides, your monthly payments are likely going to reduce as the interest rates will be reduced. And the best part is, you don’t need an excellent credit score to qualify for a debt consolidation program.
So, the bottom line is, repaying your debts is one of the things you need to do before you retire to relax during your golden years. So hopefully, the 5 tips that we discussed above will help you to pay off your debts in your retirement. Eventually, it will help you to keep your retirement stress at bay and you will be able to enjoy your golden years without any financial worries.
Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She has started her financial journey long back. Good Nelly has been associated with Debt Consolidation Care for a long time. Through her writings, she has helped people overcome their debt problems and has solved personal finance-related queries. She has also written for some other websites and blogs. You can follow her Twitter profile.