Retiring Within 5 Years? Here's Why You Must Start Paying Off Credit Card Debt ASAP

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  • Credit card debt can be a very costly way to borrow.
  • Those debt payments could prove burdensome once you're on a fixed (and likely lower) income.
  • It pays to look at ways to pay off your debt faster and more cheaply, such as via a balance transfer or a personal loan.

It's best to rid yourself of that balance before your career wraps up.

Consumer debt tends to get grouped into different categories. Mortgage debt is generally considered a healthy type of debt to have, since it helps you build equity in an asset whose value can rise over time.

Credit card debt, on the other hand, is less ideal. That's because credit cards are notorious for charging unreasonable amounts of interest on balances that are carried forward. Plus, having too much credit card debt can actually cause damage to your credit score. 

Now generally speaking, it's a good idea to try to avoid credit card debt as best as you can. But it's especially important to steer clear of it during retirement. And so if you're approaching the end of your career and you still have a credit card balance hanging over your head, paying it off as soon as possible could really work to your benefit.

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The danger of credit card debt in retirement

Many people find that their income takes a hit once they leave the workforce behind. Part of that has to do with the fact that Social Security will only replace about 40% of your pre-retirement wages if you're an average earner. Another reason is that your 401(k) or IRA withdrawals may have to be limited to ensure your savings can last for multiple decades.

But if your income drops in retirement, the last thing you'll want is the added expense of credit card debt hanging over your head. And if you're able to shed that debt ahead of retirement, you'll have one less recurring bill to worry about at a time when money might be tight. 

How to pay off credit card debt efficiently

If you're within five years of retirement, it's time to get serious about your credit card debt. And it's also a good idea to come up with an effective payoff strategy.

One option is to order your credit card balances from highest interest rate to lowest, and then tackle your most expensive balance first and work your way downward from there. Another option is to do a balance transfer, which allows you to move your various balances over to a single credit card -- ideally, one with a lower interest rate or a 0% introductory rate. 

A third option to consider is consolidating your debt via a personal loan or home equity loan. In doing so, you'll get the benefit of locking in a fixed interest rate on your debt. And you might also lower the interest rate on your debt substantially. 

Of course, once you come up with a credit card debt payoff plan, you'll need to work hard to free up cash to see it through. That could mean having to cut some expenses or even take on a second job temporarily. But you'll be thankful for having done that if you're able to enter retirement without the weight of a pile of credit card debt dragging you down.

As it is, many seniors experience their share of financial worries. Getting rid of your credit card debt will give you one less thing to stress about once retirement officially kicks off.

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