Five Ways to Pay Down Your Debt Before Retirement

Image via WikipediaIf you’re close to retirement and still in debt, have hope. With smart financial planning, there is still time to get you on track.

Ashyia Hill from CreditDonkey, a credit card deals website, shares five tips on paying down your debt before retirement.

1. Start paying more than the minimum.

You should always pay more than the minimum amount required every month. The minimum amount due is usually between 2% and 5% of your balance, and paying that little will just keep interest charges building up against you.

Instead, pay as much as you can afford each month, aiming for at least double the minimum balance. This might mean canceling your cable and entertaining yourself with YouTube videos for a while or picking up microwavable meals instead of going out to eat, but it will be worth the relief you’ll feel when you’re finally debt-free.

2. If you have multiple credit cards, consider moving your debt over to a credit card with a low interest rate and 0% balance transfer fee.

OK, let’s say you have three credit cards and you owe $1,000 on each. One credit card has a 20% interest rate, the second has a 16% interest rate, and the third has a 14% interest rate. You could save money by transferring the $2,000 you have on the higher-interest credit cards to the lower-interest credit card.

That’s where 0% balance transfers come in handy. If you qualify for a card like this with a low interest rate, you can move your debt over and save money.

However, the fine print on some credit cards can make this tricky. Some cards charge hefty balance transfer fees that could make this method more trouble than it’s worth.

3. Leave $1,000 in your savings account and use the rest to pay your debts.

Chances are, your bank isn’t paying you the kind of interest for the use of your money that the folks you owe are charging you to use their money. So, although it’s scary, you might want to scrape out all but an emergency $1,000 from your savings account and use it to speed up the process of debt repayment.

But why $1,000? Well, this is the amount that Dave Ramsey, a successful financial author, radio host, and motivational speaker, recommends. Considering that Dave Ramsey built a real estate portfolio worth millions by the time he was 26, lost everything when his borrowing habits led him to file for bankruptcy after failing to pay $1.2 million of short-term notes, and then worked his way back to being debt-free, this author gets the feeling he knows what’s he talking about.

A thousand bucks should be enough to keep your head above water in most emergency situations until you figure out what to do.

4. Get a second job.

That’s right, I’m recommending that even people close to retirement consider a second job to get out of debt.

Honestly, the economy is bad for everyone right now and a lot of people are doing it. Part-time, freelance, seasonal, and temporary work is becoming more common and widely-accepted everywhere.

This is the method recommended by Jeffrey Kosola, a father who found himself owing $101,000 to creditors back in 2008 and realized this kind of debt was preventing him from supporting his family the way he wanted to. Getting a part-time job delivering pizzas started him on the journey to becoming debt-free.

Even if you can only manage a small second job, such as working one day per week at a mom and pop store, putting all of the money you earn at that job toward paying off your debt is sure to help.

5. Renegotiate with creditors.

If you don’t think you’ll be able to pay off your debts, reach out to your creditors. Let them know that if you can’t renegotiate your terms, you’ll have no choice but to file for bankruptcy.

Your creditors would rather get some money than no money at all, which is why they are often willing to bend on their terms. Ask for a lower interest rate as well as an easier repayment schedule.

This could really help you in your quest to get out of debt, and besides, it doesn’t hurt to ask.

Trying out these tips will mean changing your lifestyle, but making some sacrifices now could mean enjoying the debt-free retirement you’ve always dreamed of in the future. We wish you the best of luck.