More and more seniors are carrying debt well into retirement. Since 2001, the number of seniors carrying mortgage debt in retirement has increased from 21% to 30%. This debt can take a toll on your ability to enjoy your retirement, both by undermining your financial stability and attacking your psychological well-being. So while it might be painful to scale back on luxuries and spend your money on interest payments, you’ll be happier in the long-run if you do.
Paying down debt isn’t magic. It’s a simple matter of throwing as much money at your debt as quickly as you can, thereby preventing interest from accruing. But a few tricks can stretch your debt payment dollars and help you get out of debt faster.
Stretch Your Money (and Make More of it, if Possible)
To make more debt payments, you’ll need more money. Cutting back on needless expenses, such as buying a soda at the convenience store and eating out multiple times each week, can help you save hundreds of dollars over time. If you’re not yet retired, consider delaying retirement for a year or two. This allows you more time to save for retirement and pay down debt.
Pay High-Interest Loans First
Your money will work harder to eat away your debt if you pay high-interest loans first. These loans steal money from your bank account each month on needless interest payments. Knock them out faster by paying as much as you can, then making minimum payments—or slightly more—on your other accounts. When you’ve paid off the first high-interest loan, move on to the next-highest, steadily working your way down the list and out of debt.
Look Into Debt Settlement
If your debt has snowballed to the point that collection agencies are calling you, it’s easy to feel hopeless. Perhaps you’re even considering bankruptcy. Before you do that, ask the collection agency if they’ll accept a settlement. A company would rather recover some money from a consumer who settles their debt than no money from a consumer who files for bankruptcy. Be sure to get the settlement in writing before you sign a check.
If you don’t have enough money to pay a lump sum, consider a reverse mortgage. This type of loan uses the equity in your home to give you cash that’s tax-free. You don’t have to repay the loan until you sell your home, and are generally eligible if you are over the age of 62 and own your own home.
Pay a Little Extra
If you’re overwhelmed by your debt and unsure where to begin, embrace a simple approach. Simply pay a bit more toward each bill than the minimum payment each month. One easy way to do this is to round up. If your car payment is $369/month, pay $400 instead. This approach is a bit slower, but it’s also less painful, and can save you thousands in interest payments over time.
Make Multiple Payments
Even if you don’t have extra money to put toward your debt, you can speed up the repayment process by making micropayments. The process is simple: instead of paying every month, make a half payment every two weeks. Just make sure the full payment is received before the payment due date each month. At the end of the year, you will have made an extra payment. Micropayments can also slow the accrual of interest. This calculator can help you visualize how quickly biweekly payments will reduce your debt.