Retiring with debt can make it more difficult to stretch your retirement funds, and medical debt is a major concern, with 4.5 million older adults having medical debt in 2018. Housing debt, such as mortgages and home equity loans, and credit card balances often add to the amount owed. Reducing debt can give you more breathing room in your budget.
It's important to know how much debt you have, what type of debt it is and the interest rates on your various debts. This helps you understand what you need to pay off, and it can help you decide the order for paying off debt. Set up a spreadsheet or another tracking system to monitor your debt as you pay it off.
Review your list of debts and decide how to pay them off. Tackling your highest-interest debts first can help you pay less in interest. Some people prefer to pay off smaller debts first. Once they're paid off, you can apply the amount of your payments for those debts to the next balance you want to eliminate. Decide how much extra money you can put toward your debts, and track your progress as you go along.
Avoid using revolving credit, such as credit cards and lines of credit, to pay off your debt faster. If you continue accruing new debt, it's difficult to pay off the older debt. Building an emergency fund gives you a backup option instead of relying on credit when true emergencies happen. You might also need to rethink your budget to cut back on certain spending areas, so you can avoid charging expenses.
Refinancing can make your existing debt more affordable and easier to pay down. For example, if mortgage interest rates are lower than your current rate, refinancing can lower your payment or allow you to pay off the mortgage faster. You can also cash out the equity in your home to pay off other high-interest debts, but you'll owe more on your home, which can prolong your mortgage.
If debt is overwhelming you, downsizing might be an effective way to get your finances under control. Selling a large home that's difficult to afford and maintain in favor of a less expensive home frees up more money in your budget. If you have enough equity in your current home, you can cover a large portion of the new home purchase, making your mortgage payment much lower.
Moving to an assisted living community can also help you save money because you get lots of amenities for one price. You also don't have to worry about maintenance, which can eliminate large, unexpected repair bills. Paying less for housing also makes it easier to pay off higher-interest debt with the extra money in your budget.
You might also need to downsize your life in other ways. For example, if you have a large RV that you financed, selling it eliminates that debt payment and saves you on gas and maintenance costs. You might decide to take less expensive vacations or cut back on other major spending categories while you tackle your debt.
If you can't keep up with your regular payments, debt consolidation or debt settlement might be an option. With debt consolidation, you combine your debts in one place, ideally with a lower interest rate. One option is consolidating to one credit card. You might be eligible for a card with a special intro rate for transfers that can keep the costs lower. Another option is using a home equity loan or line of credit to consolidate your debt, but you could lose your home if you can't keep up with the payments. Use this option with caution and only if you can afford to make the payments.
Debt settlement involves working with your creditors to settle the debts, typically for a lower amount than you owe. Not all creditors are willing to settle, but many will accept a settlement offer that's less than your balance. If you can't pay the debt, they might not get any of the money. With a smaller settlement offer, at least they get some money back. Beware of debt settlement companies that offer to handle the settlements on your behalf. Many scammers work in this industry, so verify that the company is legitimate and doesn't have lots of complaints against it.
Credit counseling is an option for learning how to manage your debts and other expenses. These companies can offer you suggestions for paying off your debt. Credit counselors can also help you create a budget that lets you pay off your debts faster. Some credit counselors might also offer debt management and debt consolidation programs. Look for a local, non-profit credit counseling agency when possible.
Most people think of their retirement years as carefree with no need to work. However, not everyone can comfortably retire completely. Working a part-time job or offering your skills on a freelance basis generates more income if your retirement income isn't enough to pay off your debts. This can be a temporary situation until you pay off your debt completely or at least lower it to a comfortable level.