When people retire, they want to know that they are set financially. A big part of this is being able to retire without having to pay a lot of your money toward debt anymore. But if you have a lot of debt and only a few years before you’re wanting to retire, it can be hard to figure out how to accomplish both of these things at the same time.
To help you with this, here are three tips for getting out of debt before retirement.
Consider Your Interest Rates As You Prioritize
As you near retirement, it’s time to really start getting your financial priorities in order. To help you in doing this effectively, you’ll want to consider what the interest rates are that you’re working with.
If you’re trying to save for retirement but you still have debt, the interest rates of your debt and the interest rates of your retirement accounts will have a big impact on where you should be focusing your finances. For example, if your debt has a higher interest rate than what your investments are making, you’ll want to get that debt paid off more quickly. On the other hand, if you’re making more interest in your investments than you’re paying on your debt, it could be financially smarter to invest more now while you can.
Pay Off Debt With The Highest Interest First
When you’re wanting to focus on paying off your debt, the first piece of debt that you should focus on is the debt with the highest interest rate. Even if this isn’t the debt that has the largest balance, if this debt is causing you to pay a lot of interest, you’re going to want to get rid of this debt as soon as possible.
If you can get rid of any high-interest debt before you retire, you’re going to have so much more money available to you during retirement since you won’t have to be siphoning off your monthly income to continue paying off this debt.
Start Downsizing Early
Another thing that you can do as you attempt to get out of debt before retirement is to begin downsizing for retirement as early as you’re able to.
When you were younger and raising a family, you likely needed a larger and more expensive home and car. But now that you’re getting closer to retirement, you can sell these assets and use some of the profits to pay off your debt while you live in a smaller, more modest home and drive a smaller, more modest car. This can help you save both for retirement and for retirement expenses like healthcare and assisted living payments.
If you want to get out of debt as much as possible before you retire, consider using the tips mentioned above to help you do this effectively.
