Manage Debt In Retirement: 5 Proven Strategies

Senior couple laughing on the beach in retirement

Managing debt in retirement can be extremely challenging and overwhelming. Unfortunately, that's what most seniors are going through. Forbes reports that millions of American seniors still owe student loans and over 30% of them have mortgages. Here we will talk about some of the best ways to manage debt in retirement.

The crisis isn't just a financial issue anymore. Having debts in retirement can take a toll on your mental health. Experts warn that it can increase the chances of dying early because it causes emotional stress and depression. But all is not dark and gloomy.

Although carrying debt into retirement reduces your chances of settling it due to limited income, a growing number of retired citizens are managing debt well. So if you're looking for ways to manage debt in retirement without losing your mind, read on.

Get Your Figures Right

Knowing exactly what you owe can help you make realistic and achievable goals that will help you manage debt. Most seniors who work with estimates often make uninformed decisions or assumptions.

As a first step, make a spreadsheet or a table of your creditors. Write down all your credit card balances, home loans, medical bills, personal loans, and other debts. Include any outstanding fees or charges as they can add up quickly.

After that, create another list of your income, pensions, social security benefits, and other retirement funds. This will help you make a budget and determine the next appropriate steps.

Manage Debt by Prioritizing

Budgeting is one of the best ways to manage debt, and it helps create a realistic debt-repayment plan. But while you should work towards making minimum payments to avoid fees and high-interest rates, it is also prudent to strategically settle as much debt as possible.

Keep in mind that the higher the interest rate, the larger the amount of money you're giving out every month. And as such, it's wise to start by focusing on clearing the costliest and least beneficial debts. So start with unsecured debts such as credit card loans.

While a mortgage is considered 'good debt,' it can be a huge responsibility in retirement. Experts warn that withdrawing retirement funds to pay the mortgage can not only increase your odds of running out of money but can also add up your tax bills.

So if you live in a large home that's not paid off, consider downsizing. This can help you have an affordable place to live. It might also help you get a lump sum of money to pay other debts which will reduce monthly repayments and interest rates.

Get A Side Hustle Or Job to Manage Debt

If all the strategies above seem unhelpful, consider taking a job in retirement. In fact, the number of Americans working in retirement, starting side hustles and taking part-time jobs is growing. It’s a great way to not only manage debt, but also stay busy.

Fortunately, there is no law barring you from claiming Social Security benefits while working, so you can earn as much as you want. You just need to be creative and find more ways to earn extra income in retirement.

Working in retirement also helps you make new friends and have something to do that doesn't entail spending money. Just make sure you pick or start a side hustle you can enjoy and manage without compromising your health.

Ask For Help

If you feel extremely overwhelmed by debts, don't be afraid to ask for help. Financial advisers, friends, and family can help you find other ways to pay your debts. Family, for instance, can negotiate a lower payoff or even consolidate your debts when assigned power of attorney.

But if you feel uncomfortable asking for help, there are numerous resources available. For example, you can go to a local organization or government agency tasked with helping seniors.

Working in retirement also helps you make new friends and have something to do that doesn't entail spending money. Just make sure you pick or start a side hustle you can enjoy and manage without compromising your health.

Clearly, managing debt in retirement can be nerve-racking. Without a clear strategy, it can adversely affect your financial capability, mental health, and social well-being. With these strategies, you can plan, budget and repay your debts while remaining sane.