10 Ways to Pay Off Debt Without Dipping Into Retirement Savings

Debt can put a strain on anyone's financial situation. Beyond simply keeping up with minimum monthly payments, interest charges can make it difficult to pay down your balance.

It can be tempting to tap into retirement savings to pay down debt. But that can set the stage for future financial troubles. Here are some better ways to manage or get out of debt during your golden years.

Consider a debt consolidation loan

A debt consolidation loan lets you group many or all of your debts into a single loan. Instead of making multiple payments, you simply make one monthly payment that covers many debts.

For some borrowers, this offers a more streamlined way to pay back debt. In many cases, it is possible to get a debt consolidation loan that offers a lower interest rate than what you are paying on your current loans.

Use a credit card balance transfer

If you have a large balance on a credit card with a high interest rate, a credit card balance transfer to a card with a lower rate might save you money.

Through this option, you transfer existing credit card debt to a new credit card with a lower interest rate attached to it.

Some cards might even offer a temporary period with an interest rate of zero. This can buy you time to aggressively pay down the balance before regular interest charges begin to pile up again.

Boost income with a side gig

Increasing your income is one of the best ways to pay off debt. As you increase your income, you can funnel the newfound money toward your debts.

Some possible ways to earn extra income include taking a part-time job or renting out extra space in your home. Or, consider a side hustle such as walking dogs, babysitting, or delivering food.

Declutter and sell the things you don't need

Another way to boost your income is to sell anything you don't need. If you start looking around the house, you might be surprised by what you can live without.

Consider selling old electronics, clothes, artwork, games, or furniture. If you want to take things a step further, look outside to see if you have any recreational vehicles, such as a boat or an all-terrain vehicle, that you can sell for cash.

Cut back on spending

Cutting back on spending can help you pay down debt. As you make cuts, redirect those funds into your debt repayment plan.

Some ways to trim spending include avoiding take-out food, using coupons, cancelling subscriptions, shopping for used goods, and finding free entertainment through the library.

Try a "no-spend" month, which involves saying "no" to any discretionary purchases for an entire 30 days.

Negotiate with creditors and debt collectors

As you navigate debt repayment, consider negotiating with creditors and debt collectors. In some cases, the lender will accept less than what you owe to clear the debt.

If you want to pursue this route, give your creditor or debt collector a call and ask if it will offer some repayment flexibility.

Consider offering a lump sum that you can stomach in exchange for eliminating the debt. Although this doesn't always work, it never hurts to ask. Just be aware that pursuing this option can damage your credit score.

Use a HELOC to pay bills

If you have considerable equity in your home, borrowing against it through a home equity line of credit (HELOC) could help alleviate the pressure on your budget.

Although the money you tap into via a HELOC must be repaid eventually, this option might give you some breathing room as you determine the best course of action.

Typically, home-equity-based lending options have lower interest rates than other forms of debt, such as credit cards. That means a HELOC could lead to interest savings as you pay down debt.

Downsize to free up some of your home equity

In recent years, home values have skyrocketed. That means that even if you are in debt, you might be sitting on more equity in your home than you realize.

For homeowners with significant equity, downsizing to a smaller home or moving to a more affordable city can come with a payday. In some cases, the proceeds from your home sale might be large enough to help you dig out of debt immediately.

Of course, moving is a big decision. But for retirees planning to make a move at some point, putting home equity to good use now could lead to a new chapter of financial freedom.

Weigh the pros and cons of a reverse mortgage

A reverse mortgage offers another way to tap into home equity as a solution for debt repayment. It allows homeowners who are at least 62 years old to take out a loan without paying back the borrowed money until they sell the home or die.

Although a reverse mortgage might solve your immediate financial problems, it can involve high borrowing costs and might create headaches for your heirs. So, it's not the right option for everyone.

Meet with a financial advisor

Everyone has a unique financial situation, which means the right solution looks different for every borrower.

If you aren't sure which option is best for you, consider consulting with a financial advisor. A competent professional can look at the details of your debts and lay out plans that align with your goals and help you get ahead financially.

Bottom line

As you prepare for retirement, getting rid of existing debts can help set you up for a bright financial future.

Although it's possible to use retirement savings to pay off debt, it's not necessarily the right move for everyone. Fortunately, there are plenty of other strategies to help you eliminate debt without cracking into your nest egg.

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