Retire in 5 years?Here’s why you should pay off your credit card debt ASAP

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It’s best to remove that balance before your career ends.

Key Point

• Credit card debt is a very expensive way to borrow.
• Paying off these debts can become a burden when it comes to fixed income (and possibly lower income).
• It’s beneficial to consider ways to pay off debt faster and cheaper, such as direct debits and personal loans.

Consumer debt tends to fall into different categories. Mortgage debt is generally considered a healthy type of debt as it helps build wealth into an asset that can appreciate in value over time.

Credit card debt, on the other hand, is less than ideal. This is because credit cards are notorious for charging a disproportionate amount of interest on balances carried forward. Additionally, too much credit card debt can actually damage your credit score.

Generally speaking, it’s a good idea to avoid credit card debt as much as possible. But it’s especially important to avoid it when you’re retired. So if you’re nearing the end of your career and you still have a credit card balance on your mind, paying it off as soon as possible could really be in your interest.

The dangers of credit card debt after retirement

Many people find that quitting their job takes a toll on their income. Part of it has to do with the fact that Social Security only replaces about 40% of your pre-retirement wages if you’re an average earner. Another reason is that you may need to limit your 401(k) or IRA withdrawals to ensure your savings last for decades.

But if your income declines after retirement, you don’t want the added expense of credit card debt. And if you can pay off that debt before you retire, you have one less recurring charge to worry about when money is tight.

How to pay off credit card debt efficiently

If you’re within five years of retirement, it’s time to get serious about your credit card debt. It’s also a good idea to come up with an effective payoff strategy.

One option is to order your credit card balances from highest to lowest interest rate, then work on the next highest balance and work your way down from there. Another option is to do a balance transfer where he can transfer various balances to one credit card.

A third option to consider is consolidating your debt via a personal or home equity loan. Doing so gives you the advantage of locking in a fixed interest rate on your debt. You can also significantly reduce the interest rate on your debt.

Of course, once you’ve come up with a credit card debt repayment plan, you’ll need to work hard to free up the cash to implement it. But if you can retire without a pile of credit card debt dragging you down, you’ll be grateful you did it.

In fact, many seniors share their financial worries. Getting rid of his credit card debt is one less stressful thing for him after retirement officially begins.