U.S. consumers routinely take on debt, whether in the form of a mortgage, auto loan, or credit card bill. And people are generally advised to try their best to pay off their debt before their senior years arrive.
The logic is that once you retire, you may move over to a fixed income that consists largely of Social Security and, if you’re lucky, perhaps some modest withdrawals from the savings you’ve built. At that point, you may not have a lot of financial wiggle room.
Also, many retirees are surprised by how expensive it is to live in the absence of a job. Not going to work means having more hours in your day to fill. And filling them has the potential to cost money.
As such, having to make debt payments as a retiree could constitute a major strain. Unfortunately, it’s a strain many people risk dealing with.
A recent Nationwide study finds that Americans of retirement age have an average of $70,000 in debt. And that’s not the most comforting piece of data. So if you’re nearing retirement with debt, take these key steps to improve your situation.
1. Extend your career a bit longer
It’s hard to get ahead of debt once you’re retired and your income decreases. So if you’re able to plug away at your job a bit longer while you’re earning a full-time salary, try to do so.
It may not be exactly what you had planned. But an extra year or two of work could enable you to whittle down a $70,000 pile of debt to $30,000 or $40,000 instead. It might even make it possible to enter retirement debt-free.
2. Retire, but plan to work part-time
Maybe you’re done with your 9-to-5 job and can’t bear to stay on board any longer. That doesn’t mean you can’t earn an income at all.
If you decide to retire with debt hanging over your head, turn to the gig economy for extra income, and use it to chip away at your balances. Otherwise, your debts might linger much longer than you want them to.
You may, at this point, be feeling burned out on the job front. So extending your career in a traditional sense may not work for you. The beauty of the gig economy, though, is that you can not only take on flexible work, but also, try to find a job you actually enjoy.
For example, you may have spent the past 45 years working in accounting. If you can’t bear to look at another spreadsheet but love spending time with animals, get a job pet-sitting to earn extra income and chip away at your debt without making yourself miserable all the while.
3. Prioritize your debts and pay the right ones off first
You may owe money in a number of different forms. Nationwide found that credit card debt was the most common type among older Americans, with mortgages and car payments to follow.
If your debt mix looks similar, focus on first paying off your debt with the highest interest rate attached to it. Chances are that’s your credit cards. From there, you can tackle your installment loans based on how much interest they’re charging you.
If you have a low-interest mortgage (perhaps because you refinanced in 2020 or 2021), you may not actually want to pay it off. You may be earning more interest in your savings than you’re paying on your home loan.
Bringing debt with you into retirement isn’t necessarily the end of the world, but it also isn’t ideal. And even if you can swing your debt payments, they may end up causing you a world of stress. If you’re able to shed that debt ahead of retirement, it pays to do so. It could spell the difference between enjoying your senior years to the fullest versus struggling to balance your various expenses.