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Most personal finance experts recommend eliminating all (or at least most of) your debt before you retire. If you’re retired and still carrying debt, managing it effectively can help you enjoy a more secure and stress-free lifestyle during retirement.

According to recent reports, baby boomers had an average of $94,880 in debt in 2023. The rising cost of living only contributes to the problem.

Starting your retirement with substantial debt can be worrying. Even so, if you have a plan in place to repay your retirement debt, you’ll have a better chance of truly enjoying your golden years.

Fortunately, there are many resources available to enjoy a debt-free lifestyle. Debt relief strategies like debt consolidation and debt settlement can help.

What Is Retirement Debt?

Retirement debt is any money you owe to lenders, such as credit card debt, health care bills, personal loans, auto loans, and mortgages.

American households had an average credit card balance of $6,384 in 2024. While it may not seem like a lot, if you still make mortgage payments and have other debts, it can be challenging to make payments on all of these obligations together each month.

Not All Kinds of Debt Are Equal

Good debt is low-interest, fixed-rate secured debt used to finance appreciating assets, such as mortgage loans, or to invest in financial stability. It can provide long-term value by supporting wealth-building opportunities or income growth.

For instance, an auto loan is considered “good debt” because a car provides reliable transportation for work. Some retirees even use their vehicles for side gigs like ride-sharing or food delivery.

Bad debt usually consists of high-interest (often variable-rate) unsecured debt that is used for purchasing consumables such as specialized electronics/single-use appliances (e.g., a cotton candy maker, hot-dog cooker, bread maker), lottery tickets, dining out/hotel room service, expensive home exercise equipment, or other non-essential items and services.

Essentially, a bad debt is any debt used to finance something that doesn’t provide any kind of return on the investment you make in it. Determining which debt you carry can help you determine the right course of action for dealing with retirement debt.

10 Tips for Paying Your Debts in Retirement

Whether retirement is looming far off on the horizon or already a reality for you, you need to deal with retirement debt as soon as possible. Stop living with financial stress with these ten tips.

1. Stop Accumulating More Debt

One of the most important things to do if you want to tackle retirement debt is to stop gaining more debt. Spending habits can be tough to break, and for some, it may feel like an ongoing challenge.

Create a budget to review your retirement expenses and income and see what you can afford without having to rely on credit cards. Stick to this budget. This allows you to focus on repaying your debt without ignoring your financial necessities.

For example, if your budget reveals that you have $1,000 left after your expenses each month, forgo discretionary expenses temporarily to make extra payments towards debt.

2. Reduce Your Spending

Another reason why making a budget is so important is that it will give you an overview of where you spend your money the most. Review each expense category to see where you can trim costs.

Go over your insurance policies, groceries, and discretionary spending. Cut down on non-essentials such as needless shopping and dining out. While these may seem like small expenses, they can add up quickly. 

If you dine out twice a week and your average bill is $40 each time, you’re spending just over $320 each month. Thus, if you were to pay $320 extra towards your credit cards, you’d be able to bring down the balance much faster. 

3. Find a Way To Earn an Extra Income

One of the best ways of dealing with retirement debt is by finding a new income stream to supplement your retirement income. Consider starting a part-time job. While this may not be an ideal situation for your retirement, it can help you pay off your debt without dipping into your retirement savings.

Another benefit of working during your retirement is that it may give you access to health insurance if you’re not already enrolled in the U.S. Medicare program. If you are already on Medicare, this extra income can help you pay for Medicare deductibles, out-of-pocket medical expenses, and/or Medicare Supplement insurance policy premiums. 

You may also be able to start a small consulting business from home. Capitalize on the work experience you gained throughout your career before you retired, to bring in extra cash.

4. Downsize

Consider downsizing your home to manage some of the bigger expenses you may be dealing with, such as mortgage debt, home insurance, and property taxes.

Other than the financial benefits, downsizing offers added benefits. You’ll no longer have to worry about maintaining a large property, and as a result, you probably won’t have as many unanticipated expenses related to your home as you did before.

Consider a smaller condo that is comfortable and affordable. Just don't forget to factor in condo HOA fees or rental fees before you decide to move.

5. Use Retirement Funds Selectively to Pay Off Debts

Using your 401(k) to pay off your debts comes with a few risks. When you withdraw funds from your retirement accounts, you lose that portion of your nest egg, plus any future market gains you may earn on that money.

Keep in mind that withdrawing from your retirement account before 59 ½ may trigger a 10% IRS-imposed early withdrawal penalty, depending on the type of account you pull it from.

There may also be tax consequences involved with withdrawals from your pre-tax retirement accounts. If you are taking money out of your Traditional 401(k), 403(b), or 457 account or from your Traditional IRA, you’ll likely get a large tax bill. 

Withdrawals from Roth-based accounts are generally tax-free if you've met the five-year rule and are over 59 ½. However, taking out earnings early could trigger taxes and penalties.

Weigh all the pros and cons and seek advice from a fully licensed and experienced financial advisor or Certified Financial Planner (CFP) practitioner before you consider this option.

6. Debt Consolidation

If you have different types of debt, consolidating them into a single payment can help lower your monthly costs. A low-interest debt consolidation loan may be available to those with a “fair” to “good” FICO score (680 or higher). This allows you to combine high-interest debts into a single loan with a lower fixed interest rate and more manageable payments.

For those with a “good” to “excellent” credit score (720+), a personal loan with a lower interest rate can help pay off high-interest credit card debt, reducing overall costs.

Another option is a balance transfer credit card with a 0% introductory APR that allows you to consolidate debt interest-free. However, you must pay off the balance before the promotional period ends (typically 12 to 18 months) to avoid high-interest charges.

Keep in mind that any remaining balances left on the card after the 0% rate period ends will start accruing interest at the card's standard annual percentage rate (APR), which is often 24% or higher.

A debt relief company can help you find the best debt consolidation loan for your specific needs. 

7. Use a Reverse Mortgage

Homeowners aged 62 or older may qualify for a reverse mortgage. This option allows you to borrow against your home equity, and the repayment of any amount borrowed is not required until you move or sell the house.

You can free up some money by replacing your mortgage with a reverse mortgage. The money you no longer pay towards mortgage payments can then be used to pay your other debts. In case of an emergency, you can even apply for a reverse mortgage home equity line of credit (HELOC).

8. Seek Credit Counseling

If you’re overwhelmed with all the options available and not sure where to start, seek credit counseling. Many nonprofit and for-profit companies offer credit counseling services that can help you with budgeting, debt repayment, and money management.

Your credit counselor can review your budget and can even enroll you in a debt management plan to help you pay off your debts faster.

9. Consider Debt Settlement

If you have over $10,000 in high-interest debt, you may want to consider debt settlement. A debt settlement company can negotiate with your lenders on your behalf to accept a lower settlement amount.

Debt settlement is a good alternative for those with a high amount of unsecured debt, (such as credit cards and medical debt, etc.) and are at risk of defaulting or bankruptcy. Debt settlement can reduce your overall debt by 50% before fees, so you can pay it off faster and save money in the process.

For instance, if you owe $12,000 in credit card debt, and you’re able to settle it for $7,000, the remaining $5,000 will be forgiven by the lender. 

10. File for Bankruptcy

Bankruptcy has serious, long-term consequences for your credit profile and credit scores. However, it may make sense for seniors with a lot of debt who have tried other debt-relief alternatives to no avail.

Although it can damage your credit reports and FICO scores for up to 10 years after you file for bankruptcy, you may not be so worried about applying for future loans as a senior.

Your retirement accounts and Social Security will be protected when you file for bankruptcy. Depending on your personal situation, you may be able to file for Chapter 7 or Chapter 13 bankruptcy.

Consult a Professional For Retirement Debt Relief

Through counseling, budgeting, and effective debt relief programs, you can repay your debt, can regain financial stability—even in retirement. Consult a credit counselor or a fully licensed and experienced Certified Financial Planner (CFP) practitioner for personalized advice based on your financial situation.

If you are dealing with debt in retirement, connect with TurboDebt for a free consultation today. Our team can provide expert guidance and financial planning to help you pay off your debt faster.

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