Getting Rid of Debt Before Retirement

Posted by: Sophie H. | Oct 09,2007


It may sound like a pipe dream, but one of the best ways to save for retirement is to clear away your debt before you reach your final day of work.  Often, the emphasis is put on 401(k) plans, stock investments, and the like, but if you’ve got a huge debt problem bearing down, no amount of saving is going to help you retire comfortably: your retirement savings are going to go to debt.  

What this means is that debt reduction should be part of any retirement plan.  Ideally, you’re supposed to start saving for retirement as early as possible.  You should also ideally be looking to shed debt as you’re starting to save.  This is obviously a tough balance, because saving and paying off debts don’t normally work hand in hand.  You’ve got to spend some of your saved retirement earnings for getting out of debt.  

The main thing that’s recommended is that you pay off your high interest credit card debts first before tackling other credit card debt.  As it’s a good idea to have a hold on your mortgage payments as well, one good plan is to get a home equity refinancing loan.  Not only can you refinance the mortgage at a more attractive rate, but you can pay off your outstanding credit cards in the process.  By the time most people reach retirement age, they’ve built up a fair amount of equity so this is a good option.  

If you’re selling a home to move into a retirement community or other location, use some of this money to pay off your outstanding credit card debt: again the highest interest rate card is recommended first.  However, don’t rely on this money to pay off all your debts, as the housing market fluctuates and you can’t be certain that you’ll sell the home for a substantial profit.  Credit cards have a higher interest rate on the whole so tackling credit card debt first can really give you peace of mind when entering retirement.   

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