You’ve planned and saved for your retirement all your life, and now that you’ve finally quit your job and embraced your retired lifestyle, you have a problem. Your credit card debt is threatening to compromise your golden years.
Seniors over 65 have an average credit card debt of $6,351 and those between 65 and 69 have even more – $6,876 on average according to the US Census Bureau and the Federal Reserve.
Because retirees have limited incomes, they sometimes have to resort to credit cards to make up for shortfalls in their budget or unexpected expenses like medical emergencies. But that limited income also makes it particularly difficult for retirees to pay off debt. If you don’t try to aggressively tackle and repay your credit card debt, it could end up ballooning and affecting your retirement.
Here are some suggestions for how you can get rid of debt for good.
Refinance your debt
If you have a significant amount of credit card debt, the first thing you should do is look into refinancing or consolidating your debt. Many seniors have good credit scores which means that you could qualify for a loan at a much lower interest rate than you’re paying on your credit cards.
If you own your own home, you could also take out a home equity line of credit (HELOC) and pay off your credit card debt with that. Because a HELOC is a secured loan that uses your home equity, the interest rate will be particularly low.
By paying off your credit card debt with a low-interest loan, it will be much easier to repay your credit card debt since more of your money will go towards the principal of the loan each month rather than the interest.
Downsize your budget
You might have had a particular retirement lifestyle in mind when you were planning for retirement, but your credit card debt is compromising your financial health and it’s important that you focus on taking care of your debt now so that it won’t impede your future.
Start by looking at your budget to see what you can cut. If you’re in a significant amount of debt, you might want to cut some of your big expenses. For example, you might want to sell your second car if you have two cars or downsize to a smaller house. Not only will you save money on monthly expenses by doing that, but you will make money from the sale of your home or car that you could potentially put towards your debt.
If your debt is smaller or if you can’t sell those assets, then you should look at other expenses such as food, entertainment and travel and cut back. Use that extra money to put towards your debt in order to ensure that you pay it off quickly.
Focus on the highest interest rate
If you can’t consolidate your credit card debt, it’s important to focus on aggressively paying back the cards with the highest interest rate first. You could also transfer your high-interest balance to a balance transfer credit card at a lower interest rate. This will ensure that you pay less overall in interest and are able to get debt free much more quickly.
After you pay off the card with the highest interest rate, you should then switch your attention to the card with the next highest interest rate. This process is often referred to as a debt avalanche method since it is the quickest way to pay off debt.
Get a part-time job
While many people think that retiring means you will never work again, a lot of ‘retired’ people start a second career or take on a part-time job to stay busy or to make ends meet. Working a little could help supplement your retirement income and allow you to pay off your debt more quickly.
This could also help boost your retirement savings to make up for your debt.
Depending on your qualifications and experience, you could do some freelance or consulting work in the field that you previously worked in or you could try out a new career.
Avoid debt in the future
No matter what strategy you use to get out of debt, it’s important that you try to avoid debt in the future. That means that you should figure out why you went into debt and what steps you can take to ensure it doesn’t happen again.
For example, if you went into debt because you had an emergency, then make sure to save an emergency fund that you can tap into the next time something happens. Similarly, if you find you always go into credit card debt around the holidays due to added expenses, consider cutting back or saving a bit every month to tie you over in December.
Whatever you do, make sure that you don’t get into credit card debt again.
Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site.
Featured Image Credit: bernardbodo / iStock.AlertMe