Should You Pay off all Your Debts before Retirement?
Retirement is a time to leave all responsibilities behind and enjoy your life. However, it is not as easy as it seems. Neither responsibilities nor financial obligations stop chasing you. More than 60% people spend their retirement age paying off debts, according to a survey. Debt is one of the biggest reasons of worries among senior citizens.
Some people choose debt-free life after retirement and hence they settle all their debts before being retired, but there are some financial facts that you must consider before taking a decision.
Financial conditions vary from individual to individual and whether you will carry your debt during the age of retirement depends on your financial condition. You are lucky enough if you have several income sources after retirement such as income from rent, pension and income from investments. You can manage to pay off your loans in Ireland even after retirement if you have enough money to survive.
However, some people survive with only one source of income, which is pension, and it is natural to have problems while paying off the debt. If you have been taking on a debt even after retirement, you will face difficulty staying afloat.
The common debt you will be having after retirement is mortgage. If the term is not very long, you may have settled your debt before retirement, but what if you have got retired and your mortgage payments are still due.
Having no mortgage after retirement:
- Reduces stress and financial anxiety
- Lower the chances of getting into a debt cycle
- Helps you enjoy whole of your income to fulfil your needs
Therefore, some people pay off all mortgage payments before the time as the retirement period approaches. However, it may have certain drawbacks. You may end up paying prepayment penalty due to which a lower interest deal can prove very expensive.
Therefore, debt management must be your priority. How you manage your debt will have an impact on life post retirement.
Debt payment should be a part of your retirement plan
You must have a retirement plan to spend your life post retirement with no hassle. If you feel that you will retire with some debt, add this factor in your retirement plan. While you need to save money regularly for your retirement, you need to arrange extra funds to keep afloat.
You will have to make a budget bearing in mind the debt payments. Treat it as your regular expense, so make your budget accordingly.
Stop applying for new debt when you are closer to your retirement age
When you hit your 50s, you should be cautious about taking out a new loan. When mortgage payments are due and you keep applying for new loans, a large chunk of money will start going in payments of debts, which means smaller savings. You must remember that you can experience reduction in your income sooner than you expected.
Make debts more manageable
Take all necessary actions to stay ahead of repayments. You will be able to be on the financial track if debts are more manageable. If you feel that your mortgage is not going to be settled before your retirement, make sure that you have paid all other debts.
If it seems a bit tough, you should negotiate interest rates with your credit card companies and lenders. If you have multiple debts, try to consolidate them. Some lenders also provide 0% balance transfer deals. You can pay off whole of your debt without interest for a particular time.
Financial experts always suggest that you should take out loans as per your affordability. This is the best way to avoid getting multiple loans.
The bottom line
Whether or not you should pay off all your loans before retirement depends on your financial circumstances. If you have great income, you can manage to bear the burden of debt. Otherwise, your retirement life will no longer be peaceful.