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Navigating debt when approaching retirement

Talking about your finances, especially debt, can be challenging. It’s a serious issue within UK society, especially when you consider how common debt is.

According to a recent survey conducted by Debt Justice, a staggering 6.7 million people in the UK find themselves in financial distress. One in eight (13%) admit to missing three or more credit or bill payments within the last six months alone.

Unfortunately, debt has become an inescapable reality for many individuals amid the ongoing cost-of-living crisis. Meanwhile, for those approaching retirement, tackling debt when preparing to give up a regular income can be an incredible stressful situation.

So, given it’s StepChange’s annual Debt Awareness Week, now is an ideal opportunity to reflect on the impact of debt on retirement planning.

Approaching retirement with debt

Contrary to popular belief, debt isn’t inherently negative. Despite the taboo that surrounds it, and the sense of dread that ‘being in debt’ will conjure for many people, it’s important to remember that debt can constitute a vital component of people’s financial strategy.

In specific scenarios, taking on debt can be an indispensable tool for securing essential funds for retirement. Whether it’s addressing unforeseen expenses like emergency home repairs or navigating other financial hurdles, debt can function as a strategic asset when managed carefully.

But as noted, being in debt during retirement can create financial worries. Repayments can eat into your retirement income, leading to a lower standard of living as funds that could have been used for living expenses or leisure activities are diverted towards servicing debt.

High levels of debt may force individuals to reconsider their retirement timeline. This means potentially delaying the point at which they stop working in order to address financial obligations and bolster their retirement savings. A recent study highlighted that a quarter of over 55s said unsecured debt such as credit card loans were hampering their ability to save for retirement.

Unfortunately, this issue can easily be compounded by a reluctance to get help in addressing debt-related concerns. Anxiety, stress, a sense of shame, or simply a lack of knowledge regarding where or how to seek advice can all leave retirement planners feeling isolated.

Seeking advice

When it comes to managing debt in the lead up to retirement, facing it head-on is always the best approach. Understanding the full scope of your financial obligations lays the groundwork for crafting a realistic repayment strategy tailored to your unique circumstances. This is where the value of financial advice shines through.

Seeking financial advice is crucial in understanding your financial situation and retirement goals. An adviser will be able to make the appropriate recommendations to suit your needs when it comes to managing debt. For example, an independent financial adviser (IFA) might be able to suggest ways of using other savings, investments or asset to pay off debts, or create longer-term plans for ensuring debt repayments remain under control. Crucially, since everyone’s situation is different, some may benefit from advice from a specialised debt management expert – an IFA will be able to point you in the direction of one if that is the case.

Dealing with debt can feel like an uphill battle, especially when debts become financially or emotionally overwhelming. With the ongoing cost-of-living crisis, we know this situation has only become more common. So, if you find yourself struggling with debt that feels like it’s getting out of hand, remember to stay calm. Reaching out for help can make a big difference in getting your finances back on track.