6 Ways to Pay Down Your Debt

Six Ways to Pay Down Your Debt

The years leading up to retirement used to be the time when people paid off obligations like the mortgage, auto loans or credit card bills. These days, however, an increasing number of Americans in or approaching retirement are saddled by consumer debt that leaves them feeling cash strapped each month. 

Cut out the extras

The first step in repaying unwanted debt is to take a realistic look at your spending, separate needs from wants and plug any leaks in your budget. For example, are you paying for premium cable service when basic would suffice? Are you signed up for a gym membership you don’t even use? To help minimize such unwanted spending, try a free service like Truebill.com, which finds and cancels recurring subscriptions you no longer want. “The average person using Truebill saves more than $500 a year just by canceling unwanted subscriptions,” says CEO Yahya Mokhtarzada. Put those savings toward your debts. 

Double your payments

One reason many people stay locked in a cycle of debt for years is that they only make minimum payments. Experts say that’s unwise if you want to be debt-free during your golden years. “You always want to aggressively pay down the most expensive debt first,” says Kimberly Foss, a certified financial planner and founder of Empyrion Wealth Management in Roseville, Calif.  She recommends initially attacking high-rate credit cards, preferably by at least doubling the minimum payment. “Do more if you can,” she says. But if you can’t, “even $5 extra is better than just making a minimum payment.”

Refinance credit card debt into personal loans

Another option to more quickly eliminate credit card debt or costly payday loans is to refinance those obligations into lower-cost personal loans, known as peer-to-peer loans.  “They’re fast and easy to get online, and people typically get the money in two to five days,” explains Todd Albery, CEO of Quizzle, a credit information site. Albery says about 80 percent of personal loans are done to consolidate credit card debt. Consumer financial services company Bankrate has found personal-loan offers as low as 5.5 percent for people with good credit, but the average is 11.3 percent. That’s still better than rates from most credit cards, which now average 15.7 percent, Bankrate reports.

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Sell stuff

After a lifetime of raising kids or moving from one household to another, many boomers and retirees have accumulated way more stuff than they currently need. To raise cash for debt elimination, unload unnecessary clothes, jewelry, furniture, electronics and household goods. You can have a garage sale, sell items on eBay or Craigslist, or take items to local consignment shops. If you have two or three cars, consider selling one and save on gas, insurance and maintenance.

Beware of debt-settlement pitfalls

Although TV and radio ads offer to help you settle your debt for pennies on the dollar, financial pros say debt settlement can create other problems. Settlement companies typically require consumers to set aside money each month—sometimes for years—into an account to be used later in negotiations with creditors. But, the Federal Trade Commission (FTC) warns, many consumers can’t keep up with those deposits and drop out. And there’s no guarantee creditors will settle—so your debt woes could remain.  The companies also sometimes advise consumers to stop paying creditors directly, which can trigger late payment penalties and ding your credit history, the FTC says.

Consider bankruptcy as a last resort

If you suffer a job loss or serious health issues later in life, research shows that you can easily slip into debt because of medical bills, which is the No. 1 cause of personal bankruptcy in the U.S.  If you’re out of work, retired or simply can’t cover your monthly expenses—or if you racked up insurmountable medical bills due to an illness or injury—then bankruptcy may make sense.  Just consider all your options first, and recognize the potential damage to your credit rating before you seek bankruptcy protection.

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