How to Reduce Debt Before You Retire

Debt remains a significant issue among seniors in the UK, particularly in the light of dwindling private and state pension pots.

According to the Survey of Consumer Finances, the percentage of households featuring an adult aged 65 and older with any debt increased from 41.5% in 1992 to 60% in 2016, with this highlighting a growing issue that’s impacting the ability of citizens to fund their retirement successfully.

But what steps can you take to reduce debt prior to your retirement? Here are some ideas to keep in mind:

 Cut Your Living Expenses

Let’s start with the basics; as you need to start the process by reducing living expenses and using any additional disposable income to pay off debt.

This will require stringent and detailed budgeting, while you should also target everyday expenses that can deliver small but incremental savings that accumulate quickly over time.

Just try to reduce living costs in a way that doesn’t overly compromise your standard of living, as this will help you to achieve a balanced and cost-effective life.

Explore Equity Release

If you’re fortunate enough to own your home and retain a significant amount of value in the property, you may also want to consider equity release as a way of accessing funds to pay off some existing debt.

The funds gathered from equity release can subsequently be paid in a single lump sum, which is then deployed to pay off targeted debts in full and minimise your long-term financial burden.

Prioritise Urgent Debts With Higher Rates of Interest

If you’re actively paying off debt, you should prioritise liabilities with the highest rates of interest and earmark these as urgent debt payments.

The reason for this is simple; debts that carry higher rates of interest tend to accumulate more quickly over time, especially in instances where you’re only making the minimum monthly repayments and struggling to tackle the original amount borrowed.

If such debts are left unpaid for an extended period of time, your debt mountain will grow quickly and leave you struggling to cope during your retirement.

Increase Your Income

There’s an old adage which suggests that you may need to “speculate to accumulate” in the current economic climate, particularly as the inflation rate (which could increase to 4.4% in Q1 of 2022 in the UK) continues to rise at a faster pace than savings rates.

In this case, those approaching retirement may want to supplement their income and earning capacity through a range of methods, from freelancing to accessing passive revenue through a diverse range of investment markets.

Consider Debt Consolidation

In instances where your debt liability or interest repayments are simply too high, you may also want to consider a so-called “debt consolidation” plan.

This model enables you to consolidate debt into a single personal loan, creating a single debt repayment each month that’s far more manageable and can contribute to safeguarding your financial future.