- January 22, 2019
- Posted by: Ethica Private Wealth
- Category: Blog
When it comes to retirement, everyone’s financial circumstances are different. Some people are thoroughly prepared and are looking forward to a healthy budget once they retire. Others may be more concerned about the amount of cash they have to play with when they decide to stop working. In an ideal world, everybody would retire without debt, but understandably, this isn’t always possible.
For those carrying debt into retirement, keeping up with regular payments and interest can become difficult when you no longer have a steady income and significant monthly payments can have a big impact on your retirement budget. Whilst clearing your debt completely may not be possible, you can attempt to reduce your debt in order to make your payments more manageable when you reach retirement age. In this article, we’ll cover 4 tips that can help you to do this efficiently.
1. Pay Off the Most Expensive Debts First
Different debts carry different interest rates, and some debts are regarded as more beneficial than others. When it comes to preparing for your retirement, its a good idea to prioritise paying off your less beneficial debts first. For example, a credit card with a 16% interest rate is less beneficial than your mortgage payments, as it gives you no returns and is likely to be a substantially higher interest rate. For this reason, it’s better to pay this off first than pay extra towards your mortgage and then you won’t have to continue receiving high bills with 16% interest added when you retire.
2. Create a New Income Stream To Pay Your Debts Faster
Although you may feel like you’ve already reached your earnings capacity in your regular job, there are a lot of ways to gain extra money in your spare time. It may require you to sacrifice some of your time, but it could be well worth if you’re serious about reducing your debts. Your extra income stream doesn’t have to come from a generic ‘job’, it could come from some form of online earnings that you can commit to when you have the time. ‘Gig work’ is becoming increasingly popular online as businesses are now choosing to outsource tasks like writing, data input and assistant tasks on a pay as you work basis, which means there is a lot of potential to make a healthy side income on a schedule that suits you.
If you do decide to pick up extra work or create a new income stream, it’s a good idea to devote the earnings solely to reducing your debt, as this will help you to make extra payments and reduce the amount you’ll have to pay when you retire. Another benefit of creating an extra income stream is that it also gives you an opportunity to continue working during your retirement, which could mean extra cash to help you manage your debt payments.
Read More – 6 Ways To Earn Money During Your Retirment
3. Use What You Have To Get What You Need
Usually, people pay for their debt payments from their regular monthly income and then spend the rest on what living and savings, but they fail to see the financial potential of the things they already own. Many people are sitting on assets in the run-up to their retirement that they could be using to help them reduce their debt. Some ways to make extra money to put towards your debt include:
- Selling Vehicles
A lot of people will have more vehicles that they actually need. This could be cars, boats or vans that spend most of the year sitting in storage waiting for a sunny day when you actually want to use them. Selling these vehicles could help you to reduce your debt to help make your retirement more comfortable.
- Make use of space
For many soon-to-be retirees, empty nests are a fact of life, but they could be an extra source of income if you’re really committed to reducing your debt. Renting out rooms is a great way to make extra cash that you can use to pay off your debts. If you’re not keen on having people stay in your house, you could also think about renting out land you have as parking spaces. You don’t need to have a huge plot for this, but you can offer free space on your driveway to commuters who need a place to park in exchange for cash.
Read More – How to Build Your Retirement Savings Quickly
4. Consider Downsizing
The thought of parting with a family home is hard, but it could be a way to create a big cash injection that could help you wave goodbye to your debts once and for all. Downsizing can be emotionally difficult, but it’s worth having a think about if you have big plans for retirement and you just don’t have the cash. Aside from the fact that downsizing will help to free up cash you’ve spent on your mortgage, it will also give you a chance to eradicate your mortgage and pay in cash for a new property that is smaller and more affordable. This means one less debt to think about when you retire, and depending on how much you sell and buy for, you may have some money left over to add to your retirement fund or to pay of any other debts you still have.
Don’t let debt have a negative impact on your retirement
Dealing with debt can be stressful, but it doesn’t have to put a dampener on your retirement prospects. Taking positive steps to reduce your debt can help you to ensure that your retirement is as relaxing and enjoyable as you’d like it to be.
If you need advice about the best way to manage your debt in the run-up to retirement, the team at Ethica Private Wealth Specialists may be able to help with a 2 Hour Free Consultation where you can discuss your worries with a professional.