Ideally, you want to get rid of debt before retirement, but the reality is that many retirees still have debts. The first step is to review all of your accounts and take inventory of what you owe your creditors. It is also wise to obtain credit reports from these credit bureaus: TransUnion, Experian, and Equifax. Contact your creditors and work out a feasible payment plan that works best for your budget. Start by paying off the high-interest debts first, then pay down your low-interest debts. Here are more ways to decrease debt during retirement.
Refinance Your Mortgage
If you have a mortgage, this would be a good time to refinance it in order to get a lower interest rate. Refinancing helps you if you want to lower your monthly payments or pay off your mortgage quicker. When you refinance your loan during retirement, you should apply for a fixed-rate loan instead of an adjustable-rate loan. This ensures that you have the same payment each month. Look into getting a 15-year mortgage because it allows you to have a faster payoff time.
Consolidate Your Non-Mortgage Debts
Another idea would be to consolidate your non-mortgage debts into one new loan. Debt consolidation also allows you to pay your debts at a better interest rate. It makes debt repayment more efficient for you in the long run. Although the rate on the new loan is based mainly on your credit score, there are some lenders who might offer you discounted rates if you have retirement funds.
Purchase Generic Brands
Your grocery bill will be higher if you buy mostly name-brand groceries. You can save money by switching over to generic brands. For example, generic canned vegetables taste just as good as your favorite name-brand versions. The same is true for generic dried pasta, rice, milk, and toiletries.
Downsize Your Lifestyle
If you're paying debt in retirement, you want to downsize your lifestyle so that you have more money to eliminate your debts. Some good ways to downsize include:
- Cutting back on your grocery expenses
- Trading your current car for a less expensive one
- Relocating to a more affordable city
- Canceling any unnecessary subscriptions
- Taking advantage of senior discounts
Consider Part-Time Work
You may be retired from the job you've had for years, but it doesn't mean that you can't pursue more meaningful work with fewer hours. You can get extra money for paying off debts by working part-time. Thanks to the Internet, there are numerous online jobs that make great side hustles. Here are some good online jobs for retirees that you can take on.
Do a Balance Transfer
If your current credit card doesn't have the best interest rate, you can transfer the balance over to a new credit card that will offer you a better rate. This is a neat way to pay your debt in a more efficient way. When looking for a new card for the balance transfer, you want a card with low fees and that offers a credit limit that is greater than your current balance.
Use Retirement Funds
If you've accumulated a significant amount of money through your investments and retirement accounts, you can use this income to pay off a few debts. However, this should be your last resort for several reasons. There is a tax penalty that you'll face if you take out funds before age 59 and a half, and this penalty can be expensive. If you withdraw funds early from your 401K plan, you will receive a 10% penalty.
These strategies will be helpful in eliminating debt after retirement.