5 Ways To Reduce Debt Before You’re Eligible for Social Security
Written by
Vance Cariaga
Edited by
Daria Uhlig
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One of the best financial moves you can make before reaching retirement age and applying for Social Security is to reduce, or even eliminate, your debts. Entering your golden years debt-free brings both financial security and peace of mind. But getting rid of it isn’t necessarily easy.
The generations that are closest to qualifying for Social Security benefits — young baby boomers and Gen Xers — both carry a lot of debt. The average debt load for boomers was just shy of $95,000 in 2023, according to data compiled by Experian. Those averages include older boomers who probably have much lower debt. For Gen X, the average debt was $157,556.
Reducing that debt in your 50s and early 60s isn’t easy, but it’s worth the effort. Here are five ways to reduce debt before you’re eligible for Social Security beginning at age 62.
Pay Off Credit Card Debt First
Experts at Charles Schwab recommend not trying to tackle all your debt at once because you’re likely to get discouraged. Instead, you should prioritize which debts to pay first — and if you have credit card debt, that should be your first priority. Make a list of your credit cards and balances, from the highest-interest card to the lowest, and focus on paying the highest-interest cards first.
Get Rid of Car Loans
You don’t want to carry car loan payments into retirement, so if you have any to pay off, do so before you are eligible for Social Security. If you can get by with fewer cars, try selling one and using the profits to pay off outstanding car loans. Otherwise, dip into any excess savings you have and use it to pay off your car loans.
Use Windfalls To Pay Debt
When you get work bonuses, tax refunds or other sudden infusions of cash, use them to pay down debt. This is fairly a painless way to do so because it’s income that you don’t already have budgeted.
Use Your Spare Time To Earn Extra Money
Everyone has heard the cliché that “time is money,” and in this case, it’s true. Put your spare hours to good use by getting a part-time job or side hustle that can boost your income. Plenty of lucrative side gigs are available for people over 50, ranging from tutors and consultants to pet sitters, rideshare drivers, bookkeepers and content writers.
Assess Your Mortgage
Your mortgage is probably your biggest debt, and paying it off will go a long way toward putting you on the path to a debt-free retirement. But there’s a lot to consider. You don’t want to tap out your savings to pay off a mortgage, especially if the payment is manageable and you have a low fixed interest rate. And as Schwab noted, if you have a 3.5% mortgage rate and investments that pay better than 3.5%, you might be better off not cashing in the investments to pay off your mortgage. In all other cases, however, paying off your mortgage is a smart move.
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