Strategies to Help Pay Off Debt
It’s wise to be debt free as you approach and enter retirement. Once you’re living on a fixed income, it’s much more difficult to make payments. However, there are inevitably situations in which emergency funds are required and people may end up taking on debt with no clear-cut way of paying it off any time soon.
Here are a few strategies to help you pay off debt no matter your current income status:1
- Allot a fixed amount (e.g., $400) to spend between income checks for all expenses beyond static costs such as groceries, gas and Use this cash for anything you want, but don’t go over.
- Open a separate checking account in which to deposit this fixed amount; use a debit card for that account only — once it is depleted, your discretionary spending is done until your next paycheck.
- Within your discretionary income, determine the greatest amount you can allocate toward your debt each month and commit to that payment.
- Do not use credit cards again until the debt is paid off.
- Try to consolidate multiple debt accounts so your single payment covers more than your minimum required payment.
- Make your largest payment to the account with the highest interest rate; once that account is paid off, use that money to bolster payments on the balance with the next highest rate — and so on.
- If the interest rates are similar across your debt, pay all minimums but apply more cash to the smallest balance first until it is paid off; then the next smallest, and so on — this tactic offers a strong sense of achievement.
- Try not to tap retirement funds or investment accounts to pay off a debt balance, as that may trigger taxes and/or If you’re over age 70 ½, consider allocating your required minimum distributions to debt payments, as they have to be withdrawn anyway.
- Find another source of income for which you can dedicate your entire earnings to pay off debt (anything from babysitting to becoming an Uber driver or delivering take-out).
- If you can’t pick up extra work, consider what you might sell to raise cash, such as a boat, motorcycle or pool table that is no longer used.