4 steps to managing debt in retirement
In an ideal world, we’d all retire debt free. But in reality, the average New Zealander retires with debt, so you’ll need a strategy to continue paying the bills in retirement.
1. Plan ahead
Your debt management strategy should start well before retirement. In the years leading up to the big day, when you are still working and bringing in a regular wage, do as much as you can to bring your debt down. This means paying off as much as you can on your mortgage, credit cards or personal loans; consolidating anything you can’t pay off to get a better deal; and not taking on any new debt.
2. Be smart with your debt
Once you’ve retired, sit down with any remaining debt and work out the best strategy. You should always pay off the loan with the highest interest rate first, so you can lower your interest charges. If you can afford it, look at making payments every two weeks rather than every month. It’s only a small change but can make a big difference.
3. Make some changes
Ultimately, if you need to make some cuts to your budget to reduce debt, it’s the smart thing to do. This could be something as small as changing brands to reduce your weekly shopping bill right up to selling a car or downsizing to a smaller home. Your debt could be seriously holding you back from enjoying your retirement, so some short term sacrifices could have some big long term benefits.
4. Look at consolidation
Refinancing is a big deal and not something to be taken lightly. However, in some situations, it may be the best option. There are a number of services that offer free financial counseling, so they should be your first port of call. Understand what your options are and see if a major refinance is your best option. Compare the loans and their interest rates, fees and charges; speak to different lenders; and steer clear of deals that look ‘too good to be true’. Retirees are, sadly, one of the groups most likely to be caught by financial scams, so it pays to be extra vigilant.
Do you have any tips for managing debt in retirement?
This article is for general information only. You should seek formal financial advice on your specific circumstances.