Tips to Pay Off Debt and Lead a Stress-Free Retirement

While it’s easy to advise older adults to get out of debt before retirement, it’s a Herculean task for many people. And at the same time, older adults have to remember one thing: debts can postpone retirement plans, leading to a stressful financial life.

High cost of living, inflation, limited income from social security benefits, and rising medical costs make it very difficult for older adults to pay off debt. But, if older adults can eliminate debt before retirement, they can enjoy financial freedom in their golden years.

In this post, we will discuss a few tips that baby boomers can use to pay off debt and enjoy financial happiness.

How Older Adults Can Pay Off Debts

It is not good to retire with debt. Still, older adults in the US are carrying more debt than before. According to a report released by the Congressional Research Service, the percentage of debt held by older adults has gone up from 38% to 61% between 1989 and 2016. The total amount of debt has increased from $7,500 to $31,000.

When older adults retire with debt, they lead a poor lifestyle and confront stress. On the other hand, people who become debt-free before retirement lead a peaceful financial life.

If you don’t want to be bogged down by debt in your retirement life, here are a few tips you can use to avoid financial stress.

Follow a Budget

It is impossible to become debt-free without a smart budget plan.

Create a budget plan that helps you clearly track your income and expenses. Then, change your spending habits to reduce your expenses and increase your savings.

Use your savings to pay down your debt.

Consolidate Your Debts

A debt consolidation program is one of the best ways to get out of debt for older people.

In a debt consolidation program, you can get rid of high-interest rates. As a result, you can make affordable monthly payments and get out of debt, eventually. Just make sure you calculate the debt consolidation fees and the associated cost before signing any agreement.

Take Out a Reverse Mortgage

62 years and older people can tap their home equity to qualify for a reverse mortgage. The best part of a reverse mortgage is that people don’t have to make payments until they die or sell the house.

You can take the money and use it to pay off debt or repair your home. With a reverse mortgage, you can free yourself from the obligation of making monthly debt payments without liquidating your retirement assets.

Use a Balance Transfer Credit Card

Transferring your credit card balance from a high-interest card to a low-interest one can help you pay off debt quickly.

You should keep one point in mind: you have to pay the entire balance within the introductory period.

Balance transfer credit cards come with an intro rate of 6 to 12 months. Once that period is over, the credit card company will charge a high-interest rate on the outstanding balance.

Downsize When the Housing Market is Good

If you have a house in an area where the housing market is really good, you can sell it at a decent price and move to a smaller home with lower maintenance costs. A small apartment will have lower repair costs and property tax. You can also use the money to buy a home in an area with a low cost of living.

Of course, you can discuss this with your family before making a final decision.

If you can sell your home at a good price, you can use the money to pay off your debt and buy a smaller home.  

Settle Your Debts

Inform your creditors that you are in financial hardship and negotiate a lower payoff amount with them.

If the creditors understand your situation and agree to your proposal for a reduced payoff amount, you can get rid of the debt by making a lump sum payment.

Please note: You have to save a specific amount of money before initiating the negotiation process. Otherwise, you won’t be able to quote an amount to the creditor.

Borrow from Your Retirement Savings Accounts

Consider this as your last option to pay off debt. You can liquidate your retirement assets to pay back your creditors. But you may deplete your retirement savings in the process. Plus, you may have to pay a tax penalty for early withdrawals.

Take Out a Home Equity Loan

If you have built equity in your home, you can take out a low-interest home equity loan or HELOC to pay off your debt.

But before you take out a home equity loan, you must analyze the pros and cons to protect your financial future.

The average interest rate of a home equity loan varies between 3% and 12%, which is much lower than credit cards. So you can quickly pay off the outstanding balance on your credit card with the home equity loan and then make small monthly payments on the new loan.

However, there is one drawback of a home equity loan.

It is a secured loan. So, you are replacing unsecured debt with secured debt. If you fail to pay off this loan, you can lose your home to foreclosure.

You can also take out a debt consolidation loan to eliminate debt. But some lenders may hesitate to issue a loan because of your age. Also, if you don’t have a high credit score, lenders will ask you to pay high-interest rates on the new loan.

Final Notes on Tips to Pay Off Debt and Lead Stress-Free Retirement

Financial scams are rampant, and older adults are often targets of them. If you don’t want to add financial stress to your already stressful life, stay alert. You don’t want to incur more debt in your life.

Before working with a debt relief company, check its online reviews. Don’t pay advance fees.

Please read the agreement ten times before signing it. If a debt relief company makes an offer too good to be true, then stay away from them. It is most likely a scam.

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