It's no secret that being in debt during your working years can prevent you from saving for retirement. But carrying that debt with you into retirement is just as dangerous, if not more so. Once you move over to a fixed income, you can't afford to have a chunk of it eaten up by debt payments, whether it's the good kind or the bad. That's why one of your priorities should be to pay off your debt before you leave the workforce, even if that means a little extra hustling at the tail end of your career. Here are a few specific types of debt that can hurt you as a retiree.
1. Mortgage debt
Many folks who own property take out 30-year mortgages in their 30s and manage to pay off their homes by the time retirement rolls around. But for those who start out later in life, entering retirement mortgage-free isn't so simple. An estimated 30% of homeowners 65 and over continue to carry mortgage debt, and if you're one of them, that'll only make what's already your greatest monthly expense even more burdensome.
Remember, as homes as age, it costs more money just to keep up with them. If you work on getting rid of your mortgage payment in time for retirement, that's one less bill to worry about.
Not sure where to start? One option is to switch from monthly to biweekly mortgage payments -- in other words, take your monthly payment, divide it in half, and pay that amount every two weeks. At the end of the year, you'll end up having made one additional monthly payment, but if you start doing that early enough during your working years, there's a chance you'll knock out your mortgage in time for retirement. Another option is to refinance to a better rate, which will lower each individual payment. Once that happens, you can take the amount you're saving and apply it to your outstanding balance until it goes away.
2. Credit card debt
We all know that credit card debt is the bad type to have -- not just because it can wreck your credit score, but because it's typically costly to pay off. And unfortunately, seniors aren't immune to credit card debt. The average household nearing retirement (aged 55 to 64) carries $8,158 in credit card debt. Thankfully, this number drops to $6,876 for those in their mid-to-late-60s, but that's still not a small amount to work on eliminating when your income is limited.
A better bet is to come up with a plan for getting rid of credit card debt during your working years. One easy approach is to round up your present debts, figure out which cards charge the most interest, and pay those off first before moving on to less costly debts. You might also try transferring your total balance to a card with a lower interest rate than what you're currently paying, or even taking out a personal loan at a lower rate and using the proceeds to wipe out what you owe on your various cards.
3. Student debt
Many people don't think of student debt as a senior problem, but these days, a surprising number of older Americans are on the hook for educational loans -- either ones they took out for themselves, or for their children. As of 2013, the average pre-retiree with student debt owed nearly $8,000. If you're approaching retirement with that much debt, or a similar level, it pays to work on eliminating it before you decide to end your career.
Of course, the challenge is striking a balance between continuing to fund your retirement savings and getting rid of that nagging student debt. One option is to work a side hustle, which is a guaranteed means of bringing in extra income. Workers aged 53 to 62 who work a secondary job are more likely to earn an extra $1,000 per month or more than workers of any other age group. You might also think about scaling back other expenses, whether it's restaurant meals or vacations, to free up more money to pay down your debt. In fact, these strategies can apply to any sort of debt you're carrying, whether it's of the student, mortgage, or credit card variety, and they're easy enough to implement once you make the decision to work on entering retirement debt-free.
Not only can high levels of debt be bad for your finances, but in some cases, they can also be bad for your health. Even on a less extreme level, the last thing you want is undue anxiety during retirement because your debt level is stressing you out. You're better off starting retirement with a clean slate, even if it means pushing yourself harder to get there during your working years.
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