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Debt doesn't always disappear when your career ends. About 97% of U.S. adults between the ages of 66 to 71 carry nonmortgage debt, with the median amount at $11,349, according to a LendingTree analysis.
Mismanaging debt in retirement can chip away at your financial security. Fortunately, there are clever ways to pay off debt and protect your savings. Here's what retirees often get wrong about debt, and how to avoid mistakes.
Now Available: The Definitive Guide to Retirement Income
Many successful investors eventually reach the same moment. The saving is done, the portfolio is built, and the question quietly changes from how much can I grow this to how much can I take out? Get that second question wrong and decades of good investing can come apart in a handful of years.
That is exactly what The Definitive Guide to Retirement Income helps answer.1 <p class="">Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. Guides are provided by Fisher Investments. The publisher may be compensated when readers request a guide.</p> It covers what your retirement could actually cost, which income sources are worth using, and the withdrawal math that decides whether the money lasts. It is free today from Fisher Investments. Read More Here ›
1. All debt is bad
Not all debt is inherently negative. While high-interest debt can be detrimental, certain types of debt — such as mortgages — can be strategic financial tools when managed responsibly.
Paying debts on time can even help boost your credit score during your golden years.
2. You can't negotiate debt with a credit card company
Many retirees assume credit card terms are fixed, but that's not always the case. Credit card companies might be willing to lower interest rates, waive fees, or settle for less than you owe, especially if you're struggling.
A simple phone call might help you reach a more manageable payment plan. The best policy is to be honest about your situation and ask what options are available.
3. Debt relief won't cost you anything
Some retirees are surprised to learn that debt-relief programs typically come with fees. These services often charge either a flat fee or a percentage of the debt enrolled.
While a debt-relief organization might be able to help you reduce what you owe, you will have to pay for this service, and the cost can vary widely. Understanding the full cost upfront is important to deciding if it's the right option for your situation.
Released: The Definitive Guide to Retirement Income (Sponsor)
Most people spend their entire working lives focusing on one thing: growing a pile of money. Then they retire and discover the skill they actually need is close to the opposite. Turning that pile into steady income, year after year, through good markets and bad, without ever running out. It may be the least discussed and most consequential transition in personal finance, and plenty of otherwise careful investors walk into it with no real plan.
That is exactly what The Definitive Guide to Retirement Income helps answer.1 <p class="">Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. Guides are provided by Fisher Investments. The publisher may be compensated when readers request a guide.</p> It is a free guide from Fisher Investments covering what your retirement will really cost, where the cash flow should come from, and how much you can safely withdraw each year. Learn More Here ›
4. Credit counseling will cost you a lot of money
Nonprofit credit counseling agencies often offer free initial consultations and may provide ongoing support at a low cost.
These services often include budgeting help and financial education, making them a solid resource for retirees who are in trouble with debt.
5. Debt consolidation always saves you money
Trying to keep track of a number of different payments can be bewildering, especially as we get older. But while debt consolidation can simplify your payments, it doesn't guarantee savings.
The key to saving is to make sure the new loan's interest rates are lower than your current rates. It's crucial to compare terms carefully and ensure that consolidation truly benefits your financial situation.
6. Carrying debt on a credit card helps you build a credit score
A common misconception — even among retirees — is that maintaining a balance on your credit card improves your credit score.
However, the reality is that paying off your balance in full every month is more likely to boost your score. Carrying a balance can also lead to unnecessary interest charges.
7. Bankruptcy is the best way to get rid of a large amount of debt
Bankruptcy can offer financial relief, but it's rarely the best solution. Filing for bankruptcy has significant consequences, including a long-lasting impact on your credit score.
Other options — such as debt consolidation or negotiating with creditors — may be more suitable for your circumstances. It's important to consult with a financial advisor before deciding to declare bankruptcy.
8. Divorce frees you from your ex-spouse's debt
Divorce decrees don't alter existing agreements with creditors. If you co-signed a loan or held joint accounts, you're still legally liable for the debt, regardless of the divorce terms.
If you are a retiree who experiences a post-age-50 "gray divorce," creditors can still pursue you for payment if an ex-spouse defaults on a loan that was in both your names during the marriage, for example.
Consulting with a legal professional can help you understand your obligations.
9. Paying off debt will quickly improve your credit score
Eliminating debt is beneficial, but improvements to your credit score may not be immediate. It can take time before your credit score reflects your good behavior.
So, be patient. The best way to improve your credit profile is with consistent, on-time payments and responsibly using credit over time.
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10. You should never touch your retirement savings to pay off debt
Some retirees are reluctant to tap into retirement savings to eliminate debt. However, there are situations where paying off high-interest debt can be beneficial.
Take a look at interest rates and potential tax implications to see if this applies to you. If you are unsure of the best course of action, consult with a financial advisor or tax advisor.
Bottom line
Retirees often face misconceptions about debt management, which can lead to unnecessary financial strain during what should be years of relaxation.
Don't get hung up on false beliefs. You may find that your debt is more manageable than you originally thought. Debt in retirement is very common, but debt payoff strategies don't have to be complicated.
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- 14 moves seniors could benefit from but often forget about.
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