Pay it Forward: Four Ways to Handle Your Debt Before You Retire
By Anita Ginsburg
Debt is often thought of as a problem only for young people, but the truth is, debt impacts people of all ages. Once you’re in significant debt, it can be difficult to escape it, and the problem can stalk you for years. Retiring with debt can have a substantial impact on your budget and lifestyle. Here are some ways to manage your debt before retirement.
Types of Debt
There are two kinds of debt: Good debt that boosts your credit score and bad debt, which lowers your score, often drastically. Examples of good debt include your mortgage and lines of credit that have a regular payment history. Bad debt includes high credit card balances and missed payments. Though it might not seem like a big deal when you are young, as you get older, paying off bad debt doesn’t get easier. The best way tackle debt is with the snowball effect. Pay off credit cards with the highest balances first. You also need to stop creating new debt. While this alone won’t get you completely out from under debt, it will stop you from accumulating more.
Pay More than the Minimum
If you only pay the monthly minimum on your credit cards, it can take years to pay off your balances. In fact, by the time it’s completely paid off, you will have probably paid the original charge three times over, and that’s without the interest. Unless you already have a debt settlement strategy in place, always strive to pay more than the minimum.
Request a Lower Interest Rate
Credit card companies usually don’t tell you they can offer lower rates. If you have a good payment history, you can request a lower interest rate. Even though not every company will reduce your rate, it doesn’t hurt to ask. Balance transfers can also save you thousands of dollars in interest, so if your credit card company offers this service, you should consider it.
Use Your Life Insurance
If you’ve been paying on a life insurance policy, you might be able to cash some of it out and pay off your debt. However, you need to make sure you won’t be penalized for this when tax time comes around.
Ask a Financial Adviser
If you’ve tried everything and still can’t get your debt under control, credit counseling services can help. Financial advisers will review all of your debt and create a strategy that’s actually doable. The best part is, they’re usually the ones in charge of making the payments. You simply let them know which debt you want to focus on first.
Although it might seem impossible, it is possible to be debt free by the time you reach retirement. The key is knowing which debts to tackle first, how much extra you need to pay and knowing when to ask for help.