If you’re about to retire with high levels of credit card debt, you’re not alone. Carrying heavy debt into retirement is an increasingly common occurrence. In fact, the amount of retirees carrying debt is up over 25% since 1992. High levels of debt in retirement can be challenging to handle. When you’re on a fixed income, your ability to pay down high credit card balances can be difficult. Additionally, monthly credit payments can crowd your ability to pay other bills. If you’re five years out from retirement and facing a mountain of credit card debt, here are some things to consider.
Stop Taking on Credit Card Debt, and Repay the Debts You Have
As your retirement date draws closer, your approach to debt should change considerably. First and foremost, you should stop taking on additional credit card debt. Work hard to avoid using the credit cards you already have. You should then prioritize your debts and focus on getting them paid off. Credit cards, which often have high-interest rates and offer no tax or other benefits, should be your top priority. While you’re still at peak earning power, focusing on paying down those debts will help you reduce them considerably prior to retirement. Even if you can’t pay them off completely prior to retirement, reducing the balances will help to lower the interest you continue to accrue while lowering your monthly payments.
If you’re carrying large amounts of credit card debt and are concerned about how that’ll affect your retirement, consider delaying your retirement for a year or two. Once you retire, your ability to put a serious dent in high credit card balances will be limited. It can take a long time to pay those credit cards off, too, and you’ll end up paying more interest over the long run as you struggle to pay them all off. However, if you delay your retirement for one to two years, you can focus on paying your credit card debts down while your earning power is at its highest point. Postponing retirement for a bit to become debt free can help you enjoy your life once you finally stop working.
If you’re concerned with your ability to pay off your credit card debts as retirement nears, you should consider talking to a credit counselor. A good credit counselor can analyze your current debt situation and help you develop a plan to deal with it. In many cases, credit counselors can help clients develop budgets that pay down their current credit card debts and avoid accruing any more. If you have the means to pay off your credit card debt and the discipline to follow through with a plan, credit counseling can get you on the path to being debt free. Many nonprofits offer free credit counseling, too, so there’s really no risk.
Another option to consider as you approach retirement is debt consolidation. With debt consolidation, all your credit card debts are combined into a new loan, typically with a longer repayment horizon and a lower interest rate. Debt consolidation can help lower your monthly payments considerably. If you’re going to have to take some of your debt into retirement, debt consolidation can help make that overall debt balance easier to manage. However, in choosing debt consolidation, you’re consigning yourself to carrying debt for a longer period. Additionally, if you don’t own any property to secure the loan or your credit is less than stellar, it can be difficult to obtain a debt consolidation loan from a reputable lender.
If you’re not confident that you’ll ever be able to pay down those credit card balances, debt settlement may be an option worth considering. Debt settlement services are often a great choice for people who are close to retirement and don’t believe they can pay off their credit card debts without help. With debt settlement, a borrower empowers a debt settlement agent to speak on his or her behalf and negotiate debt repayment terms with credit card companies. In many cases, debt settlement companies can help you get favorable repayment terms that put you on the path to becoming debt free. Creditors are under no obligation to work with debt settlement companies, so hiring one is no guarantee you’ll be able to resolve all your debt problems before you retire. However, most creditors are more than willing to take a settlement offer rather than risk receiving nothing.
Deal with Debts Now to Enjoy Retirement
Retiring with a huge amount of credit card debt can make it hard to deal with other bills, and it can take away your ability to enjoy that second act. If you’re approaching retirement, and you’re concerned about the credit card debts you’re carrying, then talk to a trusted financial advisor right away. The sooner you develop a plan to deal with your credit card debt, the faster you can pay it down and start preparing for a debt-free retirement.