Struggling with debt during retirement is much more common than many people assume.
While some credit cards impose maximum age limits on credit applications, there are many others that do not. As such, some retirees decide to borrow money in order to rapidly inject cash into their retirement income.
Of course, taking on debt is not necessarily a bad thing. When managed effectively, it can be an incredibly useful tool for some. That said, if left unchecked, it can easily spiral out of control and land some retirees in trouble.
Luckily, however, retirees can undertake a few simple steps to help them regain control of their finances.
Sort out priorities
As is the case with most issues – financial or otherwise – it is always best to tackle debt head-on. As such, retirees should be honest with themselves about exactly how much they owe.
This can be done by writing down how much money the individual owes and to whom. From there, it will be possible to understand which debts need to be paid off first. Start first with the most urgent debt, such as mortgages or Fines and County Court Judgements (CCJs) for debt.
This will ensure that retirees don’t fall behind on important payments which, if missed, could jeopardise their lifestyle.
Draw up a budget
Having prioritised their debts, retirees should then be able to draw up a repayment plan – and creating a budget is vital in this.
To start with, retirees should calculate exactly how much monthly income they have. This should include state pensions, personal pensions, annuities and any other income they may receive. They should then deduct expenses from this income, such as food shopping, bills and loan repayments.
Doing so will help retirees to understand how much disposable income they will have when making the repayments. Better still, it will also help them to identify and cut out frivolous spending, at least until the debt has been repaid.
Source extra income
If, after drawing up a budget, people feel they don’t have enough disposable income to live comfortably, it could be worth considering re-joining the workforce
However, this does not necessarily mean returning to the 9-to-5 routine. Retirees could take on part-time work, or even go freelance with their previous profession or skill. Even a small boost to income could help adults to pay off their debt more quickly and sustain their current lifestyle.
Consider consolidation
Another option, which retirees could consider is consolidating debt at a lower interest rate.
Debt consolidation involves taking out a new loan to pay off multiple outstanding debts, thereby reducing the debt itself into one manageable monthly repayment. However, it should be noted that some lenders do impose early payment charges, so retirees should ensure that they understand the terms and conditions before committing to this strategy.
Ask for help
Of course, before making any major decision regarding debt, retirees should always seek independent financial advice.
Advisers, such as our team of experts at My Pension Expert, review each individual’s financial situation holistically, and offer the appropriate recommendations to suit their needs. From there, the client in question will be able to develop a sustainable debt repayment plan.
Debt management may seem overwhelming at first, particularly if people feel that it is spiralling out of control. However, by remaining calm and seeking advice, retirees will be able to effectively tackle their debt and regain control of their finances.