Retirement doesn’t mean you have to let your debt spiral out of control.
1. Make a plan
Ignoring your debt won’t make it go away. You need to be realistic about your financial situation, so make a full plan of exactly what you owe, your payments and interest, and what you can afford to pay back. It’s a good idea to speak with a financial counselor or advisor to point you in the right direction. The government offers a number of free services to help you manage your money.
2. Cut your expenses
At any life stage – and whatever your income – cutting your expenses so you can pay off more of your debt is always the first step. If you’re on the pension, it’s likely that you will already be living a fairly frugal life but look around for any extra cuts. Even paying an extra $10 or $20 a week can take thousands off your interest over time.
3. Generate some extra income
If you can't save money, make money. Even though you’re not working anymore there are plenty of ways you can bring in a little extra cash. Have a garage sale or join eBay and get rid of things you no longer use. You can look at simple business ideas like dog walking or selling cakes at a market stall. Just make sure that you declare any extra income and check that it doesn't interfere with your pension.
4. Restructure your debt
If you have debts in a lot of different places, like a mortgage, car payments, personal loans and credit cards, you probably aren’t getting the best deal. Having multiple loans can result in paying lots of different fees and accruing unnecessary interest. Speak to your bank and find out if consolidating everything under your existing mortgage or taking out a personal loan would save you money. For credit cards, you can always find good deals that offer 0% interest on balance transfers for a set period of time. Don’t be afraid to move your debt around so you can concentrate on paying off the principle, not just the interest.
5. Think about downsizing
For most retirees, their major equity is in their house. If you have paid off your mortgage or have only a small amount left, downsizing could be a way to free up some cash to pay off other debts. Moving into a smaller home or apartment means lower bills and less money spent on maintenance, as well as non-financial benefits like less cleaning to do. Downsizing is a complex process and not something to be taken lightly, so speak with a financial advisor first.
This article is for general information only. You should seek formal financial advice on your specific circumstances.