5 Debts You Must Pay Off Before Retirement
Written by
Crystal Mayer
Edited by
Chris Cluff
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It’s never too early to start thinking about and planning for retirement. Whether you are in your mid-20s and just starting your career or within five years of retiring, you will want to consider making your golden years more comfortable. One way to achieve this is by paying off your debts before you quit your day job.
We asked financial experts from across the country to tell us which five debts people should consider paying off before they retire. Here are their recommendations:
Credit Cards
It was nearly unanimous among all financial experts that people should pay off any credit card debt before retirement.
Kimberly Malesky, CFP, CDFAwith Harmony Investment Management LLC, explained, “Carrying credit card debt in retirement is ill-advised. The high interest rates make it difficult to get out from under once you are on a fixed income in retirement. Taking that pressure off your shoulders in retirement will be worth the wait. Calculate your monthly payments and how long it would take to pay off. Then go from there.”
“High-interest credit card debt stands at the forefront of debts to be cleared. Credit cards often carry steep interest rates, leading to escalating debt if not addressed,” said Khwan Hathai, a CFP and certified financial therapist at Epiphany Financial Therapy. “Eliminating this debt is crucial as it reduces the amount of interest paid over time but also eases the mental burden of having such high-cost liabilities. The psychological relief of being free from credit card debt cannot be overstated, especially as one transitions into retirement.”
Car Loans
“Vehicle loan payments can be higher than you want in retirement,” Malesky said. “The same steps above apply here. This is when you weigh your priorities. Do you want a $500 car loan payment in retirement, or would that wipe out your monthly entertainment budget? Understand your priorities so you may make a thoughtful decision.”
“Clearing auto loans before retirement reduces monthly outflows and aligns with the likely reduced need for transportation post-retirement. Owning a vehicle free and clear provides a sense of financial freedom and the option to liquidate an asset if needed in the future,” Hathai added.
Mortgage
“There is much debate on this topic. Most advisors and experts advise (you) to pay your home mortgage off before you retire. This is ideal, of course. It may not be practical for certain individuals.” Malesky said. “Applying the same steps above will help you better understand if you can afford the mortgage payment and other lifestyle expenses comfortably in retirement. I will say this: Paying off your home mortgage is one of the most satisfying things you will experience.”
“While traditionally considered a good debt due to potential tax benefits and its link to a valuable asset, retiring mortgage-free has substantial advantages. It dramatically lowers monthly expenses and provides a sense of security, vital when transitioning to a fixed income during retirement. The psychological impact of owning your home outright is profound, offering peace of mind and a sense of accomplishment.” Hathai explained.
Personal Loans
“Personal loans and lines of credit, often accompanied by higher interest rates and not tied to appreciating assets, should be settled as well,” Hathai said. “Reducing these debts can ease financial strain in retirement, allowing for a clearer understanding of available resources.”
Medical or Healthcare Debts
“Lastly,” Hathai said, “addressing medical or healthcare debts is crucial. With healthcare costs potentially rising as one age, entering retirement without these debts can help better manage future expenses. Paying off these debts before retirement isn’t just a financial tactic but also a psychological one.”
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