If you’re nearing retirement, now is a good time to take stock of your debts and expenses. Sure, you’ve likely been saving and looking forward to this next chapter of your life for a long time. But are you still paying off home equity loans, cars and credit card balances?
Taking control of your debt and spending habits now can help put you in a better position to retire comfortably and on your terms. The tips below can help you establish a plan to tackle debt and meet retirement with that much more confidence.
Keep in mind that once you retire, your income will likely decrease and remain at a fixed amount. Reducing expenses and getting income organized can help you budget for your future. Here are five ways to do it:
1. Track income and expenses. Figure out exactly how much money is coming in and going out each month. You may be surprised to find that small discretionary expenses, like ordering take-out for dinner, are taking a big bite out of your household budget. Identifying expenses you can scale back or cut altogether can help uncover potential extra funds to apply toward paying down debt faster. Plus, it’s easier to change your spending habits once you’re able to see exactly where your money is going.
2. Pay down higher interest debt first. This will help speed up your progress by reducing the overall interest you pay – freeing up money you can use to pay down other balances.
3. Consider downsizing. If you’re making mortgage payments, chances are they represent your largest monthly expense. You may want to consider moving to a smaller, less expensive home. Why continue to pay for a big yard you may not want to maintain and rooms that you might not use anymore? In many cases the answer is nostalgia, but, consider this – the savings from a less expensive mortgage could be put toward making new memories (with grandchildren, perhaps!) in your new home.
4. Consolidate. Combining multiple debts into a single, lower interest loan may help you pay off debt faster. Or, consider refinancing your current mortgage and consolidating debt into a new mortgage.
5. Consider a part-time job. If you’ve been toying with the idea of an encore career, or trying something new, this might be the perfect time to get your feet wet and earn some extra money, without quitting your day job.
Tips for Staying on Track As you tackle debt using the steps above, the following tips can help reinforce good spending habits and keep you on track toward a more financially comfortable retirement:
- Set specific goals – both small and large – and put them in writing. Think about what’s most important to you during this next stage of your life.
- Try to avoid accruing any new debt.
- Automate as many monthly payments as you can, including deposits to your savings account. You won’t miss money the money you never see, and automation makes it easier to manage your finances.
- Keep contributing toward retirement. If you’re over age 50, take advantage of catch-up provisions that allow you to put additional money into your IRA and 401(k) accounts.
- Reward yourself for staying on track and reinforce good habits with small splurges like an occasional gourmet dinner.
With a plan in place to pay off debt before you officially retire, you’ll be well on track to transition into retirement feeling confident and financially prepared to embrace the next phase of your life.
Bob Moreland is the community president at Commerce Bank in Bolivar, Mo.