What are the best ways to get out of debt before you retire?
Retirement is an expensive proposition, and planning it includes managing finances even after retirement.
It’s generally estimated that to maintain the same standard of living after retirement, you should have about 70 to 90 percent of your pre-retirement income. A safe retirement means planning your finances efficiently, saving for the future and paying off debt.
While planning your finances and retirement savings while at work is relatively easy, it’s not the case while you’re carrying a load of debt. There has long been a discussion about whether it is ideal to save for retirement or to pay off debt first. If you focus solely on paying off debt, you can reduce your retirement savings, while saving alone will not prove fruitful once your debt has piled up. So what is the best approach?
In general, pay off any high-interest debt you may have first, and then proceed with a combination of debt settlement and savings strategy.
Here are some types of debt and the best ways to get rid of them before retirement:
Consolidate your credit card debt
While credit cards are an excellent financial tool, not being able to manage your balances can cause problems. Getting rid of that high-interest debt as soon as possible should be your priority.
Credit card debt consolidation can help you pay off your debt sooner and improve your financial situation. For example, a debt consolidation loan allows you to combine multiple debt accounts into one — which can mean not only a reduced interest rate, but a lower monthly payment than the typical credit card.
Once you’ve paid off your credit card debt, avoid falling back into the red. Instead, your next step should be to pay off other high-interest-bearing debt.
Explore student loan repayment schedules
Student loans are another major hurdle to retirement planning. Or maybe you’re a co-signer on a student loan for a family member. Co-signing a loan can put you at financial risk and affect your credit score.
The first step to paying off your student loans is to know exactly how much you owe. Then find out which repayment plans and options are available to you. There are several student loan repayment schedule options including standard repayment, income-related repayment, and extended repayment. Remember, you can pay more than the minimum payment to speed up the process and focus on retirement savings.
Refinance your mortgage and auto loans
Mortgage financing and car loans are relatively low-interest loans, but they still have to be planned sensibly. For car loans, consider if you need more than one car. You can consider selling one and using that money to get a car loan and insurance.
When it comes to mortgage loans, consider two options: Invest some money and use the return to pay off the loan. Or refinance these loans at a lower interest rate and shorter repayment period. This can lower your total payment, meaning you have more cash to spend.
In addition, it is advisable not to take on any new debt as you approach 50 years of age. Once you’ve prioritized your debt, getting out shouldn’t be a long hurdle.
Lyle Solomon is the lead attorney at the Oak View Law Group in Auburn, California. He writes frequently on debt, credit, consumer law, and bankruptcy, among other topics, and is the author of Think differently, save more.
Last change: 07/25/2022