At one point, it was a no-brainer that you should aim to enter retirement without any debt. But the financial world has gotten more complicated. The Great Recession especially wiped out a lot of wealth for older Americans, which forced individuals to retire with less money and more debt than desired. (Image Credit: Сергей Ремизов/ Pixabay)
To illustrate this point, the amount of debt people are carrying into retirement has increased dramatically over the past decade. In 2017, people in the 60-69 age rage had a total of $1.99 trillion in debt. That’s up from just $1.33 trillion in 2007.
Clearly, it has become more difficult for people to retire without debt. But that doesn’t mean it has to be a part of your retirement. Here are some thoughts on ditching your debt ahead of retirement.
Why Is It Bad to Carry Debt into Retirement?
There’s some debate about how hard you need to work to ensure you don’t have any debt when it’s time for you to retire. While some people consider certain kinds of debt to be more acceptable than others, the general consensus is that people should aim to be debt-free by the time they’re ready for retirement.
The biggest reason for this is the fact that your income is going to significantly decrease when you reach retirement age. Sure, you’ll still get some amount of money from Social Security. And if you’ve done some good financial legwork leading up to retirement, you should have some money stashed away. Regardless, debt can eat up that money faster than you realize.
If you weren’t able to pay off your debt before you retire, it’s going to become even more difficult once your cash flow has decreased. Plus, there are a lot of expenses you need to think about when you’re reaching retirement age, such as potentially higher healthcare costs.
What to Do if You Have Too Much Debt
For individuals carrying more debt than they want to as they near retirement, it’s important to seek out solutions to eliminate it. It’s best to try and find a way to beat the debt on your own first.
Talking to a credit counselor should be one of the first things you do if you’re trying to beat debt at any age. But this is particularly true if you’re someone reaching retirement. A credit counselor can do a lot of things, such as provide you with budgeting tools or other financial resources. They might also be able to refer you to a debt relief agency.
When working with a debt relief company, it’s essential that you choose the right one. Not all of them are going to have the consumer’s best interests in mind. Reading through Freedom Debt Relief reviews, you’ll find they’re one organization with a proven track record of helping clients resolve billions in cumulative debt. Do your due diligence before signing up for any program.
Debt relief is an option for people who think they can get out of major debt with a bit of assistance. Having the right debt relief agency behind you can make all the difference in eliminating your debt without having to file for bankruptcy.
Should I File Bankruptcy?
Bankruptcy is another option for people who have a significant amount of debt but aren’t totally sure how they can possibly pay it back. It should be noted that bankruptcy should only be used as a last resort—especially for individuals near retirement.
The problem with filing for bankruptcy, particularly when you’re on the verge of retirement, is that you might be forced to liquidate assets such as your home or vehicle if you take the Chapter 7 route. This would be a huge burden for someone later in the game. Bankruptcy also tanks your credit score, which would make it very difficult to borrow more money.
Selling items is another way to raise funds to beat debt when you’re close to retirement. It’s likely you’ve acquired a decent number of possessions over the years. Getting rid of some can simplify your life, while also helping you prepare to retire.
No one really wants to have debt at any stage of life. But this is especially true for people coming up on retirement. Fortunately, there are things you can do to get out of debt before you stop working.