In America, retirement looks way different today than it did years ago. In the past, families would work at one company for 30 years while paying off their 30-year mortgage, allowing them to easily sail into retirement debt-free. Today, this reality is a fading dream. As debt among older Americans continues to soar, it’s become increasingly commonplace for individuals to enter retirement with debt—and a lot of it.
It’s advisable for any person to pay off their debts before retiring. However, the harsh reality is that for many Americans, it’s simply not realistic. Yet, the fixed incomes of retirement are certainly not debt-friendly. This means that if you’re entering retirement with debt, you’ll need to take a hard look at your finances and develop an effective strategy for dealing with it. The most important thing is to stay on top of the situation and not let the inherent stress and anxiety debt creates dig you into a deeper hole.
If you are struggling to manage your debt in retirement, it can be beneficial to consult a skilled debt settlement attorney. An experienced lawyer can advise you on the best strategies for dealing with your debt in retirement. Outlined below are some effective strategies for managing and paying off debt in retirement.
Don’t Accumulate More Debt
It may sound obvious, but if you already have debt in retirement, you don’t need more. It’s essential to stop racking up debt as soon as you stop working. This especially pertains to high-interest debt, like credit card debt. In order to start paying down what you owe, you’ll need to be intentional about living well within your means. As a result, retirement may not look the way you envisioned. A lot of the activities people want to do in retirement—such as traveling or buying a dream home—can be expensive, but if you don’t have the cash to pay for it, you’ll need to avoid it.
Create an Additional Income Stream
The best way to deal with debt in retirement is to establish a new income stream. Part-time work that interests you is a great way to keep busy in retirement while earning a little extra cash. Maybe it’s not the retirement you dreamed of, but it’s certainly not the worst-case scenario. Continuing to have an income stream until you have paid off all your high-interest debt is a great way to build up your retirement nest egg. As an added pro, working part-time may qualify you for health insurance, which can help to cover care that isn’t covered by Medicare.
If Home Prices Rise, Consider Downsizing
If you own a home, you should consider scaling back on your house size. A great way to pay off your debt in retirement is to downsize—especially if housing prices are high. Transferring your home’s equity into a smaller, cheaper home can help you gain access to funds for paying off debt while lowering your overall monthly expenses. Another option is to consider moving to an area with a lower cost of living than where you currently live.
Explore Home Equity or Debt Consolidation Loans—Carefully
In certain scenarios, it can be a good idea to pool some of your debts together to get a lower interest rate. This especially pertains to individuals with untapped equity in their homes, as this equity can be leveraged to qualify for a low-interest home equity loan. However, it’s really important to tread carefully, as this strategy still has all the risks associated with borrowing money to fix a debt problem.
Taking out a debt consolidation or home equity loan is certainly better in certain situations than others. For example, they can make a lot of sense for unexpected expenses, such as a surprise medical bill. However, if the underlying problem of spending beyond your means isn’t addressed, these loans can simply be a band-aid and cause more debt down the line.
Consider Cashing Out Life Insurance Policies
Another option for dealing with debt is to consider cashing out life insurance policies. For instance, you might have value in one of your life insurance policies that you don’t need anymore. You can choose to access the money in a cash value life insurance policy by taking out a loan against it or just surrendering the policy. However, this approach can be costly, as the potential fees can be up to 30 percent of the settlement value. It’s important to note that you cannot cash out a life insurance policy if you have a “term life” policy, which is fairly popular, as they are usually much cheaper than eligible alternatives, such as permanent life insurance or universal life insurance.
Too Much Debt in Retirement? Contact a Debt Settlement Lawyer
Entering retirement with unpaid debt can put a damper on a time of life that should be relaxing and rejuvenating. If you’re retired and feeling overwhelmed by debt, you should consider consulting a skilled debt settlement attorney.
At McCarthy Law, we understand the overwhelming burden that debt can have on people’s lives and are committed to helping clients end the cycle of debt. Our team is dedicated to helping our clients navigate their financial circumstances and reach a favorable outcome. To schedule a consultation with one of our skilled debt settlement attorneys, call (855) 976-5777 or fill out our online contact form.