November 01st - 4 minutes to read

Your Guide to Managing Debt in Retirement

Retirement debt doesn’t have to be a burden. Learn how to better manage it with these four recommendations!

a couple learning how to manage their debt in retirement
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If you’re among the many retirees buried in debt payment, you’re not alone. It’s estimated that the average retiree owes nearly 20 thousand dollars in non-mortgage debt. While reaching a debt-free milestone does come with its perks, it’s not always attainable or even ideal for some. Nevertheless, retirement debt management is still essential and can help you reach financial independence quicker. Below, we’ll discuss four tips for effectively tackling debt in retirement in Worthington, OH and beyond.

Handle Your Retirement Debt With These 4 Tips

Juggling a mortgage, auto and personal loans, and credit card bills during your golden years can feel like a never-ending process, especially if you’re on a limited or fixed income. Fortunately, these techniques can help you better manage retirement debt no matter your financial circumstances.

1. Understand What You Owe

Before you can get started with managing debt, you need to get a clear grasp of what you owe. If you’re not entirely sure, start sorting out all of your credit card debt, home loans, auto loans, mortgage payments, and health care bills. Add up the balances, and write down the interest rates for each of them. Then, make a list of all your retirement income, including funds, pensions, and Social Security, to have on hand when it comes time to budgeting.

2. Negotiate When Possible

Once you have a better understanding of the types of debt owed, you’ll want to see if there’s a possibility of lowering high-interest rates. Many loans have fixed, unnegotiable interest rates, but others offer more flexibility. For example, many lenders allow you to reduce the annual percentage rate (APR) on credit card balances and car loans if you have a high enough credit score.

If you’re unable to lower your APR, look into getting a balance transfer or even consolidating. In many instances, you can consolidate student loans and most types of debt without collateral. Keep in mind that you may have to pay a fee to initiate a balance transfer or refinance.

3. Budget and Prioritize Payments

Although all your debts require a minimum monthly payment, most financial planners agree that you should prioritize paying off some balances before others in some scenarios. Try tackling debts with the highest interest rate sooner to avoid spending more on interest charges in the long haul. While different repayment strategies can help you achieve this, many individuals and older Americans use the Debt Avalanche and Debt Snowball methods.

4. Decide Which Types of Debt are Worth Keeping

While as appealing as being 100 percent debt-free may sound, it’s not always the best option for some. Some low-interest-rate secured loans, like mortgages, are tax-deductible and can reduce your tax liability. Plus, completely paying off your debt could leave you with little to no expendable income or extra cash for emergencies.

Generally speaking, it’s also more feasible to make continuous minimum monthly payments versus paying in full if you have the potential to earn more than the sum of your interest payments. For example, suppose you currently pay 1 percent interest on a personal loan but can earn up to a 4 percent return on an investment. In this case, you’ll end up with more money by investing rather than quickly paying off your interest debt in full.

If you’re unsure about which debts you should keep or pay off first, consider reaching out to a retirement planning professional. For decades, the investment management specialists at Royal Oak Financial Group have been helping individuals and couples meet their retirement savings goals in Worthington, OH and the surrounding areas. We can formulate a dynamic plan to help you balance your investments and debt and ultimately gain financial independence in time. Contact us today to get started!