Are you approaching your retirement years with accumulating debts? Bad debt can be a huge burden because it hinders you from making progress financially. It deprives you the benefits of enjoying your retirement savings.
The best way to handle this is by coming up with a good plan and executing it. Give yourself a deadline for this. If you diligently do this, you’ll fully enjoy the rewards of your hard work.
Debts to do away with before retiring
- Mortgage debt
Retiring with a mortgage debt can be scary. It can deprive you the opportunity of enjoying your prime years. By doing away with them, you’re assured of a better financial life after retirement.
One way of clearing the debt is by increasing payments on your mortgage to settle it faster. You can do this by increasing your monthly payments. Let the extra payment cater for the loan principal as this allows your debt to decline.
Another option is to cut-off years and look into moving to a house that requires a smaller mortgage. This will give you the benefit of less service fees, insurance and taxation. By doing this, you have an opportunity to clear off your mortgage quickly, thus freeing up extra income to increase retirement savings or cater for costs in retirement.
- Credit Card Debt
This is huge. According to CardRates.com, the total US credit card debt stands is more than $830 million. If not properly handled, this can push you into a financial crisis.
Getting rid of Credit card debt is highly encouraged as it has a huge interest rate. Taking much time to clear it off will push you to pay extra in interest.
You can even take a personal loan from trustworthy provider which can be searched, which has a lower interest rate, and use it to pay off your credit card debts. Whenever possible, you can be relying on this method as opposed to using a credit card.
- Student Loan Debt
Student loans have messed people in multiple ways. A report by EdAssist shows that 33% of Americans take on any job just to pay off their student debt. 37% forego their dream jobs and 50% claim to have been limited by these loans. In fact, 47% prefer to get help with their student loans instead of retiring.
Making a decision to clear off the student loan debt before retirement comes in handy. By doing this, you’re guaranteed more money on a monthly basis to boost your retirement savings.
This is one of those debts that need to be cleared as soon as possible. If not, they may lead you to excruciating challenges in future.
If you plan to retire in 10 years, formulate a plan to clear your student loan in 3 years. This way, any other debt you take on should be good debt that actually increases your bottom line.
- Auto loans
Personal loans, credit cards, and auto loans are likely to have higher interest rates with no benefits attached to them. These are the kind of debts that should retire before you retire. Is there any benefit of having an expensive car acquired through a loan that seems difficult to pay? You can always get a cheaper car that you would be able to pay for in the shortest time possible.
How about getting a car that you would be able to pay in cash without incurring any debt? The money saved from getting a cheaper car or buying in cash can be used to pay for other debts.
The idea of having two family cars is not advisable, especially if you’re living above your means. Sell one and use that cash to clear other bad debts or to make wiser investments.
- Medical debt
This is one of those that comes when you’re least prepared. You may have health insurance, but in some cases that may not be enough to take care of you when a health crisis strikes.
A Kaiser Family Foundation report shows that one out of five people working in America, regardless of the fact that they have health insurance. Half of those claim that medical bills are unaffordable.
As you retire, medical costs increase. Especially if you retire at an old age. It’s prudent to have an advisor who will help you plan on how to clear your debts and create a timeline for your retirement.
2 Strategies to help you pay off debts
- Create a budget
When you have a financial problem, creating a budget is the first step to freedom. You can use personal finance tools like Mint. Or come up with your own Excel or Google spreadsheet that will help you analyze your monthly income and expenses.
This helps you to maximize on income and savings as you take control of your expenses.
- Sell unwanted gifts and household items
How many items are still stashed in your house? If you have any gift or household item that you don’t need, sell it off. Platforms like Craigslist and eBay give you an opportunity to re-sell your items at reasonable prices. Profits made from the sales should be channeled toward your debt or smart investment opportunities.
Enjoying financial freedom is all we yearn for. Use these tips to spend and plan wisely, so that you retire your debt before retiring.