5 Rules for Managing Debt in Retirement
Posted by : Premraj | Posted on : Thursday, December 22, 2016
Retirees face increasingly uncertain economic prospects. Though the cost of virtually everything continues to rise, wages have remained virtually stagnant for decades. People are working harder to afford less, and seniors increasingly struggle to make ends meet. It’s no wonder that so many retirees enter their senior years with debt. When you’re living on a fixed income, debt can be downright terrifying, particularly since your debts will likely grow faster than your investments. Here are five rules for managing and paying down debt after you’ve quit working.
Pay Your Debt Intelligently
The way you choose to pay down your debt can affect how quickly you wipe your debt slate clean. Start with the account that has the highest interest rate, since this is the one that will grow the most quickly. To get an even stronger jump start, try making payments every two weeks instead of monthly. At the end of the year you’ll have made an additional payment, and in most cases interest will accrue more slowly.
Don’t Take On More Debt
If creditors are calling you or you have a high-interest loan, you might be tempted to take on even more debt to pay off your accounts. This just pushes the problem into the future, and will ultimately create more anxiety. There’s one exception to this rule: some credit card providers offer low-interest introductory rates. If you can put your debt on a single low-interest credit card or two, you’ll be able to pay everything more quickly. The key here is to resist the temptation to put other purchases on that card, too.
Downsize if You Need to
Many seniors still live in the home in which their children were raised. If you don’t need as much space as you once did, or if you still owe on your mortgage, continue downsizing to a space you can own free and clear. Not ready to move? Consider a reverse mortgage instead. This is one of the few times that debt can be a good investment. If you’re over 62 and live in your own home, a reverse mortgage draws upon the equity in your home to give you tax-free cash. You don’t have to repay the loan until you move, making it an ideal choice for debt relief.
Find Another Income Source
You might have left your career in the past, but retirement is a great time to explore new passions. If you’re struggling financially, consider creating an additional income source to help you pay down your debt faster. Some excellent options include:
–Consulting work in a field similar to the one where you spent your career.
–Selling crafts on Etsy.
–Selling vintage items or antiques at a local shop or on eBay.
–Baby-sitting, pet-sitting, or providing in-home care to elderly people.
Don’t Pay Money You Don’t Owe
Particularly if you’re drowning in debt, creditors and third-party collection agencies may attempt to take advantage of you. Before you pay anything, ensure you actually owe the money. Request an itemized bill and a contract proving you owe the money if you’re not absolutely sure. You have a right to dispute debts you don’t owe, and to request that they not go on your credit report. Additionally, you cannot be sued for and do not have to pay debts that are past their statutes of limitation. Every state sets its own statute. To see the limit for your state, click here.