One of the most exciting things that those in the working-class look forward to is the day when they can retire from work for good. Like everything in life, financial planning is critical to maintaining the lifestyle you’re accustomed to after you stop earning an income.
The first step to assuring that you feel financially secure when regular paychecks stop is by managing your financial obligations ahead of time. Here are the top 3 debts you should reduce or eliminate before retirement:
Credit Cards
Credit Cards are among the most problematic types of debt to carry into your retirement because of high-interest rates, late payment penalties, and other fees associated with this kind of unsecured debt.
While credit cards offer a great deal of convenience, they can also cause a lot of stress if you’re living on a fixed budget. Something as simple as one missed payment can balloon your debt faster and higher. For people who have multiple credit cards, another issue that could arise is Interest Fee increases. For instance, if you have five credit cards, and your interest rates go up to 29% from 21% APR, this results in an 8% APR increase in what you’re paying in interest alone.
Depending on the amount of debt you’re carrying, this could cost you hundreds or even thousands of dollars every year – without making a dent in the principal of the account.
Payday, Title, or other High-Interest Short-Term Loans
Short-term loans such as Payday, Car Title, and other Short-Term loans carry very high-interest rates, even higher than fees associated with credit cards. These lenders of last resort provide people with bad credit or short-term cash requirements an option for obtaining access to cash quickly.
If you have any outstanding debts to this type of lender, you should make efforts to pay the debt off before you retire and try to avoid originating new loans.
Car Loans
There is nothing more satisfying than riding into your retirement with a paid-off automobile. For many people, car payments are what they consider a ‘way of life,’ and their monthly payment gets worked into their budgetary expenses. While this cost might not be an issue for someone who is working and relies on their car to get back and forth from work to collect a regular paycheck, retirees who are living on a limited income could have a harder time with more substantial car payments.
By taking steps to get the title to your car by paying it off or purchasing a vehicle that you pay for in cash, you alleviate a lot of the stress that oversized car payments can cause in your retirement years. Further, a “paid off” car cannot get repossessed by a lender later. You never have to worry about a missed payment resulting in the loss of your vehicle.
The truth is that at retirement, having as little debt as possible is a smart financial move. Being debt-free puts you at an advantage of not having to pay out whatever income you derive from pensions, retirement accounts, royalties, trust funds, Social Security, or a combination of these accounts.
With calculated planning about your future, you can take the right steps to financial security in retirement.
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