Bills to Pay Before You Retire

Ok, so we have talked a lot about retirement. Maybe because it is wishful thinking on my part, but it is also a really important time and transition in life. So we know we need to start saving early if we want to maintain our current lifestyle, or be able to travel (I would love to be able to travel). There are a million things we have to do to get ready to retire, but one of the most important things is to pay off our debts. There are three debts that need to be paid off before we retire, and with 65.4% of households, with a head of house 55 or older, having held debt since 2013, there is a significant number who go into retirement with debts lingering over them.

So what are the debts we need to take care of, and how do you get it done before we retire? Here are three debts to tackle and some advice on how to accomplish the task.

  • Unsecured debt: This includes credit cards or any other lines of credit you make have. This is a tough one because much of our lives revolve around credit, but it is important to not have credit card debt. According to Credit Karma’s calculator, if you have $10,000 on a credit card with 12% interest and are only making $150 payments, then you will pay almost $6,600 in interest. Just think about what they money could have been used for. To help tame this debt, start by evaluating you credit cards. Consolidate the amount from the highest-interest. Many credit card companies offer zero percent interest for 12 months with balance transfers. This is a good way to work your debt down to a manageable amount because the payment goes direct to the principal instead of mainly interest.
  • Student loan debt: We all want what is best for our children, but financing their education is not always what is best for us. We had to finance our own education. Let them finance their own education. If you decide to take on some responsibility to help your child with college, the best advice is to keep saving for retirement, and repay the loans as soon as they come due. Like any repayment, repay more than to minimum. Once your child graduates and get a job, have them contribute to the payback. To minimize the amount you start with, encourage them to maintain good grade, and get a good score on the ACT/SAT to be eligible for scholarships. They should also only take the classes they need to graduate, and if they cannot maintain grade then they should have to pay for the classes they fail. Do not shoulder this burden if you cannot afford it.
  • Mortgage debt: Nearly 33% of Americans’ total expenditure in 2015 went to housing. While mortgage debt is considered “good” debt, it is still debt. Most of the time when you retire, your kids are already out of the home, and your house is the last tax shelter you have. You may want to take advantage of lower interest rate and refinance, which will save on interest and get you a higher return in your investment.

If you are close to retirement and having trouble getting out from under your debt, then you may just have to work longer. While this may not be the option you wanted, it may work out for you in the long run. People who delay their retirement until the age 65 or later, can get significantly more money from Social Security then those that opt to retire at 62. And if you delay retirement until closer to 70, the amount just keeps going up.