Retiring might mean an end to the 9-to-5 world, but it doesn't bring an end to financial worries — especially if you have a lot of debt. Not all retirement debt is cause for major stress, but if you have high-interest-rate debt, you definitely want to work out a plan before you leave the workforce for good. Start by taking the following steps.
1. Figure out what you owe
In order to develop an effective debt repayment strategy, you need to take stock of your situation. Make a list of all your debts and then look up the balances on each and the interest rates. You should be able to find this information through your online bank or credit card accounts. Otherwise, you can contact the lender.
Put your debts in an order that makes the most sense to you. Putting the highest interest rate first is usually the smartest way to tackle the situation if you want to get out of debt quickly. But some people may prefer to knock a few smaller debts off their list first before moving onto larger ones.
2. Create a debt repayment plan
Once you know the order in which you want to tackle your debts, figure out how you're going to actually pull it off. You might be able to find a little extra cash each month by altering your budget and cutting discretionary purchases. But when that's not possible, you may have to resort to other tactics.
For example, if you have credit card debt, you might try a balance-transfer card. This temporarily halts the growth of your balance to help you make more progress toward paying off your debt. Or you could try a personal loan. This is essentially trading in one type of debt for another, but it could be a smart move if you have credit card or payday-loan debt that could otherwise balloon unchecked.
Don't worry so much about low-interest-rate debt, like a mortgage payment. If you're able to pay that off before retirement, that's great. But this type of debt isn't as big of a deal as some of the other types discussed here because it often has predictable payments and low interest rates.
3. Rethink your retirement plan
Now that you know how much debt you have and how you plan to pay it off, you should be able to work out approximately how long until you're debt-free. If you're on the verge of retirement, it's important to review your withdrawal strategy to make sure your budget can accommodate your debt repayments.
If you worry about running out of savings too soon, you might try reducing your spending in retirement. Or you could consider delaying retirement or transitioning slowly into retirement, perhaps working part-time for a while before quitting for good. You could also open up a side business that's more in line with your hobbies if you don't want to continue working at your regular job.
Again, you don't have to have all your debts paid off to retire comfortably. If you budgeted for a regular monthly debt payment in your retirement plan, paying it off throughout your retirement shouldn't cause you any major problems.
But be honest with yourself. Delaying retirement or cutting back on spending may not sound like fun, but it's a better solution than letting your debt continue to spiral out of control and drain your savings too soon.
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