Retirement life for Americans has changed over the years. Retirees are working part-time jobs, launching small businesses, and staying in their own homes rather than moving to retirement communities. One of the biggest changes, though, has been in a more negative direction: retiring with debt. We all know that retiring with debt can hinder your golden years financially. But recent studies have shown that it can be just as bad for retiree’s health as it is for wealth. Fortunately, there are many ways to reduce or completely eliminate debt for those in or nearing retirement.
Why it’s Important to Pay Off Debt Before Retirement
An Associated Press health poll, conducted a few years ago, showed that significant amounts of debt can harm borrowers’ health, causing physical issues such as ulcers, stomach problems, and anxiety. A more recent study by the University of Southampton found that people in debt are three times more likely to have mental health problems than those that aren’t. Carrying a large amount of debt can bring anyone down, but for those in or near retirement, owing money is far more stressful.
Debt can be a major threat to retiree’s financial security. Retiree’s live off of a fixed income, derived from social security, pensions, or other retirement savings that have been accumulated over the years. Because of this, there is minimal wiggle room in their budget to make loan payments. In addition, many types of debts have interest rates that automatically increase after a period of time. Retiree’s are much less likely to be able to handle these increases and end up falling rapidly behind on payments, resulting in increases in debt, fees, and penalties.
According to the Employee Benefit Research Institute, U.S. households with the highest levels of debt were those with heads ages 55 to 64. Those households carried an average debt load of a staggering $107,000. This is also happening at a time in life when medical expenses can start becoming more frequent. When you’re dealing with that, the last thing you need is debt-related stress hindering your physical and mental health even further. That is why it is so important to work to eliminate, alter, or reduce debt when you’re in or nearing retirement.
Ways to Reduce or Eliminate Debt in Retirement
If you’re not yet in retirement, there are plenty of strategies to reduce debt, which you should start immediately. Once you enter or are near retirement, it can be tricky, but it’s not impossible. Here are 4 ways to pay off debt in retirement.
If you took out a mortgage or car loan several years ago, compare the rate you’re paying to what lenders are charging today. There are several types of refinancing programs available, some specifically for seniors or retirees. Refinancing won’t allow you to completely eliminate all debts, but it may allow you to pay off some of them, as well as reduce interest rates and monthly payments.
2. Reverse Mortgages
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Because they entail no monthly payments, they enable retirees to eliminate non mortgage debts, particularly credit card or other high interest debt. Reverse Mortgages also have entirely different qualification requirements than normal mortgages, making them especially attractive to retirees who are on a fixed income, or who may have bad credit ratings.
3. Return to Work
While not an ideal option for retirees, it may sometimes be necessary. Finding a part-time, or even full-time job can be a great way to eliminate debt while preserving your retirement savings and other assets.
4. Debt Consolidation
If you have many debts with high interest rates you may want to consider debt consolidation. Debt consolidation involves combining what you owe into one lump payment with one interest fee. You then receive a loan to pay off all existing debt, and in turn make one monthly repayment to the lender. A debt consolidation loan generally has a lower interest rate than the previous debts and allows you to pay off everything in one monthly payment.
For example, average rates on credit cards today are more than 13%, while some personal loans of two to five years are charging just 6% or so. The rate on your new loan will largely depend on your credit score, but some lenders offer discounted rates to applicants who have accumulated retirement savings.
Financial Help from TLCLoans
While it’s best to avoid debt all-together, life happens. At TLCLoans, we listen, we understand, and try to help as best as we can. A personal loan with TLC can be the perfect response to any financial emergency. When you take a personal loan with us, the interest rate on your loan will depend on several factors including the type of loan you get, and your credit history. Will the loan interest rate stay the same throughout the life of the loan? Every loan from TLC has a fixed rate, which means your rate will not change for the entire term of your loan.
Once we receive your application, our customer service representatives will contact you to verify your income and employment, you will sign your loan agreement electronically and be all set to receive your funds. Once you have signed online, you’ll receive your loan in your bank account on the next business day.
And don’t forget, YOU ARE WITH A RELIABLE COMPANY:
- No Extra Fees, You Always Know What You Pay
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