Retirement has the potential to be a financially stressful period of life. And that stage, you're living on a fixed income, and the idea of spending down your savings may be worrisome.
But one thing that might make your retirement even more financially stressful is kicking it off with a pile of debt to your name. If you're getting closer to retirement and still have debt, it's important that you try to address that issue before your career wraps up. Here's how to tackle your debt so it doesn't wreak havoc on your senior years.
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1. Know that not all debt is created equal
You may have the goal of being completely debt-free by the time retirement arrives. But if you're juggling different debts now, know that certain ones may be worth prioritizing over others.
A $10,000 credit card balance, for example, should probably be whittled down before you attempt to pay off your remaining $30,000 mortgage. Chances are, the interest rate on your home loan is considerably lower than the interest rate on your credit cards -- especially if you refinanced a few years ago when mortgage rates fell.
Also, if you have to carry debt with you into retirement, it's better to carry fixed-rate debt, which a mortgage generally falls under unless you have an adjustable-rate loan. Carrying a credit card balance into retirement can be dangerous since the interest rate on that sort of debt can be variable. That means your credit card payments may be unpredictable, which is not a good match for someone on a fixed income.
2. Cut your spending as best as you can
If you're looking to get out of debt, it's time to do a thorough assessment of your spending. Unless you're truly living a bare bones lifestyle, chances are, there are some expenses in your budget you can cut without winding up totally miserable. Look through your bills and determine which expenses you'll spend less on.
Incidentally, come retirement, you may have no choice but to make some spending cuts if you don't have a particularly robust 401(k) or IRA. So getting used to those cuts ahead of time might make the transition into retirement easier.
3. Pick up a second job
If you're really looking to make headway on your debt, a second job could be your ticket to paying it off ahead of retirement. And if you're thinking people your age don't do gig work on the side, think again.
Recent data from Side Hustle Nation finds that 24% of baby boomers have a side hustle. The same holds true for 40% of Gen Xers, some of whom may be creeping toward retirement age.
Not only might a side job help you tackle your debt, but it might also set you up with a gig you can continue doing as a retiree. And that extra income could make it so you're able to live more comfortably.
4. Plan to work a bit longer
Maybe you have your heart set on retiring debt-free at age 65. If you're 64 and still owe a bunch of money, that may not be possible. But if you're willing to work an extra year or two, you might manage to knock out your debt so you can approach retirement with less stress.
Of course, it can be disappointing to work longer than you want to. But think about it this way: Would you rather retire with a lingering pile of debt at 65, or retire debt-free at 66?
Debt can be a problem in retirement. So your best bet is to try to pay yours off ahead of that milestone if possible. It's a good way to start off retirement on a positive, stress-free note.
