Reaching retirement is an exciting time. You’ve worked most of your adult life to get to this point, and you’re proud of this milestone. The last thing you want is to worry about debts you still have.
While this is a stress for many, it can be calmed by putting some strategies in place that can help you continue paying off your debt after you stop working. If you find yourself in this situation, follows these tips on minimizing your debt in retirement.
Spend less and minimize credit
Maybe you’ve budgeted a certain amount per month in retirement. That doesn’t mean you need to spend it all. Are there any unnecessary costs you can cut down on, or cut out all together?
Finding opportunities to save money will help you put more cash towards paying down your debt. Consider setting up a bill pay on your loan and credit card accounts, and put any extra money you have per month towards them. Also, try to minimize the amount of expenses you put on credit unless you know you can pay off the balance in full at the end of the month.
Stick to a budget
Keeping a budget was likely an important part of managing your finances in your working life, and it will continue to be important in your retired life. Tracking your cash flow will keep you aware of your spending, and can show you where you may be spending too much. You’ll be more mindful of when and how you spend your money, which can help you make a conscious effort to stay within the parameters of your budget.
Pay off high interest debt first
If you still have a mortgage, you may be tempted to pay this down as soon as possible. But your best course of action is to pay off high interest debt first, like car loans and credit cards. Start with the smallest debts to decrease the number of payments you have per month. Once you’re done clearing your high interest debt, work on paying down your mortgage. Mortgage rates are low right now; take advantage of them and continue making your regular payments until you have room in your budget for extra contributions.
Stay consistent with your payments
Consistently put money towards your debts. Decreasing the principle on your loan over time is better than waiting until you have the full amount of the debt saved. This way, you’ll save money on interest and can be assured that even small payments make a difference in the long run.
Consider downsizing your home
This is one of the easiest ways to pay off some debt, but it’s also a lifestyle change. If you’re struggling to clear debt and pay off your mortgage, consider downsizing your home or moving to a less expensive area. Chances are your kids are out of the house and you don’t need the extra space. Moving out of the city can open the opportunity to sell at a good price, and settle down somewhere else — maybe a neighbourhood you’ve always wanted to live in, or closer to family in another city.
Consider working part-time
Many people work part-time in retirement. It provides some extra income, and gives you the chance to try something new. Maybe you love to golf and choose to get a part-time job at the course near your house. Or perhaps you try your hand at floral design with a local florist. Choose something fun, and make it a hobby. The money you make can help you pay down your debt faster, build up your emergency fund, or pay for everyday expenses.
Reach out to a financial advisor
If you want extra support in dealing with your debt in retirement, consider meeting with a low-cost advisor who can set you up with a plan that fits your financial goals. An advisor can help you manage your retirement income so you get the most from it while working towards becoming debt-free. Follow these tips to find an advisor that’s right for you.
Be mindful of your debt and take positive steps towards paying it down. Remember, carrying debt into retirement may not be your ideal situation, but it doesn’t mean you can’t enjoy this new stage of life while you pay it off.
Josh Miszk is the vice president of investments at Invisor, an online financial advisor in Canada that provides personalized investment management and insurance services.