Dealing with Debt in Retirement
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Dealing with Debt
in Retirement

 

 


At any stage of your life, dealing with a debt crisis can be stressful; having to experience the issue during retirement can be even more difficult.

 

The average UK debt (excluding mortgages) is around £6,000 and those in retirement aren’t exempt from falling into crisis. Once you have finished work, and your income is set (through a combination of state pension payments and either an annuity or other private pension income), seeing the light at the end of the tunnel can be difficult, particularly if payments start to pile up on top of each other.

 

If debt has become too difficult for you to handle, it’s worth speaking with a debt charity such as StepChange to see how they can assist you.

 

In the meantime, it may be worth taking heed of the following tips to see if you can manage the debt alone.

 

Think Long Term

 

Remember that crawling out of a hole is a marathon, and not a sprint. Most of the time it will be a slow and steady process over a prolonged period of time, getting closer and closer to the debt-free finishing line.

 

Getting your debt management plan in order is the first step in the process, the rest is just working hard and continuing forward.

 

Draw up a Budget

 

Think about what you really need, based on what you can afford. The reason people get into debt is simple because they spend more than they have coming in each month.

 

Making a note of all your necessary outgoings against the income you have coming in can help you to manage your money better, purely from having it written out in front of you.

 

Now that you’re retired, thing about the things that you can cut back on. Many people get into certain spending habits when they are working and struggle to cope with a reduced income in retirement as they don’t want to cut down on a lifestyle they are used to.

 

Unfortunately, if you’re in debt then cuts on luxuries are necessary.

 

Using your Savings

 

Often people continue to hold onto savings even whilst trying to pay off debt; they claim that the savings are for emergencies

 

But guess what? Debt crisis is an emergency!

 

 It’s highly likely that the interest you’re paying on your debts is much, much higher than the current interest rate you’re generating on your savings, so by keeping them locked away for minimal growth, while your debt interest grows you’re simply going to be worse off in the long run.

 

Pension Freedoms

 

Following the pension reforms earlier this year, retirees are able to access large chunks of their pension savings as they see fit. Using a lump sum withdrawal to pay off your debts could drastically reduce the value of your fund but again, with interest rates on debt higher than the gains you’re likely to get from leaving a pension pot invested, it makes sense to get these paid off ASAP.

 

Consolidating Debts

 

While many people believe that you don’t get out of debt by taking out more debt, using a secured personal loan can help you to manage your payments much more easily.

 

Having numerous payments to different creditors can start to stack up, a personal loan can compile it into one manageable payment each month over a number of years – and there are some great rates to be found at present too.

 

If you have an existing annuity, it may be worth figuring out whether you could live off the state pension for a while and letting your annuity rate pay off the debt payments.

 

Don’t dwell on it

 

Keeping your debt worries bottled up can lead to even more stress, severely affecting both your mental and physical health. Speak to somebody about the issue. Don’t worry about people passing judgement as many more people than you can probably imagine have gone through similar issues.

 

Even just speaking to a close friend or family member can feel like a relief, and dedicated debt charities are out there to assist you.

 

Don’t let your retirement be tainted by debt worries: speak to somebody, start taking control, and make that first step towards a debt-free retirement.


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