How to Manage Retirement Debt

Published May 2021
Older couple managing finances on a laptop

Having a large amount of debt when you are ready to retire can present a challenge. Here are some tips on how to manage retirement debt.

Key Points

  •  Lower your expenses to fit your new lifestyle in order to pay off debt in retirement.
  • Using your retirement to pay off debt can be tricky but with help from a budget, you may be able to cut down on expenses enough to cover the payments.
  • If you feel you can’t afford to retire, it may be time to explore your options.

How to pay off debt in retirement

A good place to start when you need to pay off debt in retirement is to update your budget or create a budget if you haven’t already. Keep in mind that your lifestyle as well as your income will be changing once you retire. Some ways you can lower your expenses are by:

  • Downsizing your home for a more manageable mortgage, or no mortgage at all.
  • Using your senior discount whenever possible but especially in recurring bills such as groceries.
  • Cooking at home more now that you have more time in the day.

Lowering your expenses will leave more of your income to go to your debt payments, allowing you to pay debt off faster. You can also use the beginning early stages of your retirement to prepare for the future.

  • Get a part-time or temporary job to increase your income, allowing you to potentially pay off your debt faster. Once you pay off your debt, you can put more in savings for the future.
  • Create a savings or emergency fund if possible to cover any unexpected or large bills that could increase your debt or put you back into debt in the future.

If your income is not high enough, you may have to choose between saving or paying down your debt. Both can be beneficial, depending on your financial situation.

Using retirement to pay off debt

Because of taxes and penalties, it is rarely advised that you use retirement funds to pay off debt.1 If you are considering doing so, you should speak with a financial advisor or explore other debt relief alternatives like a debt settlement plan with ClearOne Advantage. A Certified Debt Specialist can give you a savings estimate over the phone at 866-481-1597.

Instead of withdrawing money directly out of your account, you could use any retirement income you are receiving to pay down debt. The trick is getting your expenses low enough to be able to make an impact on your debt. Keep in mind that if your goal is to pay down debt, you need to pay more than the minimum monthly payments your creditor asks for each month.

If you skim down your expenses enough you may be able to use your retirement income to pay off debt. The two main methods for credit card debt relief are the debt snowball method or debt avalanche method. See below how they differ to decide which one would be best for you.

Debt snowball method

  • Starts off with smallest debt amount and works up to the largest-sized debt.
  • Interest rate is not a factor in this method.
  • More rewards up-front may keep you on track.
  • Paying off an account may free up more income to pay off the rest of your debt.

Debt avalanche method

  • Starts with the debt with the highest interest rate and works to the lower interest rates.
  • May save you money since you are paying off the higher interest first.
  • May take longer to pay off your first account, which may cause you to lose focus.

Whichever option you choose, just make sure your fixed income can cover your usual expense plus your debt payment each month.

Can't afford to retire?

If you think you have too much debt to retire, you need to explore your options.

  • Delaying your retirement just a bit could help you save a little more in your fund. You may even get more out of Social Security, depending on your age!
  • If your current income is not enough, you can take on a second job. Whether it’s a one-time gig or more of a permanent position, any extra income is beneficial to paying off debt. You also may be able to put more into your retirement fund.
  • Professional debt relief such as ClearOne Advantage, which may allow you to pay off your debt in as little as 24 to 60 months.

If you are struggling with debt in retirement, or can’t retire because of debt, talk to a ClearOne Advantage Certified Debt Specialist at 866-481-1597 today to discuss your situation, explore your debt relief options, and get a free savings estimate.

Credit Card Relief - Free Savings Estimate


Topics: Debt Consolidation