I’m a Financial Advisor: 5 Best Ways Retirees Can Pay Off Debt During Summer

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Asked how they plan to build wealth this summer, a majority of seniors in a recent GOBankingRates survey cited paying off debt. Financial experts have plenty of tips on how to go about it.

Killing debt was by far the most popular choice in the survey, with 52% of respondents age 65 and up picking debt-busting as part of their summer plan. That far outdistanced other options such as creating or replenishing an emergency fund (selected by 27%), opening a high-yield savings account (19%) or working more/taking on a side hustle (13%).

“These findings aren’t surprising,” said Ryan Viktorin, a certified financial planner (CFP) and VP at Fidelity Investments. “We often see being debt-free in retirement is a common goal for people.”

Debt levels for Americans age 65 and over have declined over the last 10 years or so, with averages in 2022 hovering just over $40,000 per person, according to the Federal Reserve Survey of Consumer Finances. That’s down from about $60,000 in 2010, but still considerably higher than the year 2000 (about $20,000).

Cassandra Rupp, a CFP and a senior wealth advisor with Vanguard, agreed that retirees’ focus on paying off debt makes sense. “If you have debt, the priority is paying off that debt and feeling in control of your financial situation,” she Rupp.

Here are some tips from Rupp and other financial pros on how to do just that.

Consolidate Debt on a 0% Card

Pam Krueger, founder of Wealthramp and co-host of “MoneyTrack” on PBS, said the best ways to tackle debt will vary based on factors such as your credit score. If it’s high enough, “DIY debt consolidation” is one of your best options, she said.

With so many 29% credit card interest rates out there, transferring balances to a card offering 0% APR for up to 18 months can save you thousands of dollars in interest payments. Of course, not everyone will qualify for a card like that. You should also be wary of credit card deals that aren’t as good as they seem.

“If you can do that, it’s the best possible thing you can do,” Krueger said. “Be careful when shopping for those cards. They do exist.”

Try an Avalanche … or Maybe a Snowball

They may not sound very timely as summer draws closer, but “avalanches” and “snowballs” are names for two approaches to killing debt to consider this summer.

“There are two basic strategies for deciding how to tackle paying off debt,” Viktorin said. “The avalanche method, which begins with the highest interest rate; or the snowball method, which starts with the lowest balance. You’ll save more on interest with the avalanche, but using the snowball method can be emotionally satisfying as you clear away smaller, lingering debts first.”

Depending on which strategy you pick, your next step is creating a debt inventory organized by either interest rate (highest to lowest) or balance size (lowest to highest), Viktorin added.

“Make all your minimum monthly payments, then devote any extra money to paying off what’s at the top of your list and work your way down,” she advised.

Rupp counseled that there are other bases to be sure are covered as part of your plan. “Co-mingled with paying off debt, make sure you have emergency savings still on the side,” she said.

Consider Part-Time Work

Nothing helps you wipe out debt quite like returning to a steady cash flow. If you’re able, returning to some form of work after closing out your career may be worth a look.

You wouldn’t be alone. The percentage of people over 65 in the workforce was approaching 19% earlier this year, still down from pre-pandemic highs of 20.1% but well above the 17.4% figure from January of 2013, according to the Bureau of Labor Statistics. That translates to about 5.3 million workers over 65. Back in the year 2000, that figure was just 1.4 million.

In addition to helping you pay down debt, a part-time job may have other benefits like helping you to stay active, keep your brain sharp and avoid loneliness.

Ask for Debt Forgiveness or Other Forms of Help

Certain debts (at least portions of them) could potentially be forgiven. This includes some medical debts, Krueger said. It usually comes down to your levels of income and hardship.

“You have to ask for it, but your debt could be forgiven,” Krueger said, citing examples of contacting hospitals directly. “There’s a process. Sometimes they ask you to write a letter.”

Debt management programs through non-profits or other organizations may also be an option, Krueger added. She recommended starting with AARP as a resource.

Stick to a Budget, Watch for Pitfalls and Consider Talking to a Pro

There are many common stumbles to avoid while you’re paying down debt. Examples include:

• Not paying down the right debt (usually with the highest interest) first
• Not tapping into retirements funds to pay off debt where it makes sense, and losing money on interest
• Tapping into money earmarked for debt payments, and otherwise failing to stick to your financial plan
• Rushing into more dramatic steps like reverse mortgages

CFPs and other financial experts may be worth bringing onboard to help you avoid those traps and hone your strategy, as you make the journey toward being debt-free.

“If you’re feeling overwhelmed or need support with prioritization, many find personalized advice from a financial advisor to be helpful,” Rupp said. “They can walk you through financial considerations and offer guidance in advance of budgeting and planning discussions with your family.”

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