How you can avoid credit card debt ruining your golden years.
Credit cards provide us with a convenient source of finance during our working lives, but it’s important to get credit card debt under control when you approaching retirement.
While you might have gotten by paying minimum balances during your working years, the accruing interest will be harder to manage when your income is lower and unlikely to increase.
The first thing you need to do before retiring: pay off your credit card debts
Credit card debt is any unpaid balances that are owing on your card. It’s important to understand why you have credit card debt to avoid making the same mistakes again in the future. This is especially important if you plan to keep using your credit cards during retirement.
Understanding why you have so much credit card debt?
- Blowing off your budget. While credit cards give you access to additional funds, it doesn’t mean you should spend more than what you can afford. Try and set a spending limit in place and even reduce your credit limit to keep your debt in check.
- Having too many cards. Not only does this give you access to more money, but you’ll also be paying more fees and interest. Having too many cards also makes your repayments difficult to manage, which can see you fall into the debt trap.
- Only making the minimum monthly repayments. Making the minimum monthly repayments can see you paying off your debt for a long time, and accruing considerable interest in the meantime. Look at paying over the minimum payment if you want to make any kind of dent in your balance.
How to get rid of credit card debt before or after retirement
- Paying on time. One of the effective ways to reduce debts is to ensure that you pay on time, as this will avoid late fees and see you better managing your debts.
- Exceed the minimum monthly payment. You can reduce your debts by paying more than the required payment per month. This will lower the debts on the long run.
- Stop using your credit cards. Credit cards only make a retiree incur more debts. As a way to reduce these debts, you should avoid them and instead, start paying using debit card or cash.
- Make additional repayments. If you find you have a bit of extra cash, put it towards your debt.
- Have goals. You should have objectives that will help you maintain your financial progress. Having realistic and attainable goals will help you wade off the debt burden.
The action plan: Strategies to pay down your credit card debt
There are a few strategies that you can adopt to pay down your credit card debt before you reach retirement.
- Pay high-interest debts first. One of the biggest contributors to growing debt is the accruing interest you’re charged. Higher interest means this interest will accrue faster, so by paying off these debts first you can save yourself money. Once you pay these debts off you can move onto debts that have lower interest.
- Consider a balance transfer. If you’re struggling with repayments, you could consider doing a balance transfer. This lets you bring your existing debt over to a new card and pay 0% p.a. interest for a certain period of time. This can give you time to pay down your debt without paying interest.
- Pay off your smallest balance first. This method is also known as the ‘snowball method’ and sees you paying off your smallest credit card balance first, regardless of what interest you’re paid on your each card, the fees you pay, etc. This method can see you gain confidence in paying off your debt and also help you save on fees by closing your card once you’ve paid off your balance.
Do you need to consolidate your credit card debts?
It is always advisable to control your spending habits or else you will find yourself in serious debts that you will need to pay. If you do find yourself in this situation, one option you have is to consolidate your debts. This will help in reducing your debts in the long run. Consolidating your debts offers the following benefits:
- Reduced interest rates. A balance transfer credit card can offer you 0% p.a. on balances transferred, and you can also take advantage of consolidating your debts to a card or loan with a lower rate than you currently have.
- Better budgeting. By having a single debt to worry about you can better budget for your repayments, and you may even find that you are better able to make additional repayments. You can alternatively tackle the budgeting head-on yourself via the Pocketbook app.
- Easy to manage. Consolidating your debts means you only have to worry about one monthly repayment for a single loan, rather than several repayments for separate loans.
Compare Debt Consolidation loans:
Moving on from a credit card to the benefits of a debit card
Credit cards invite more expenses and thus more debts, but debit cards ensure that you only use what you have. Doing away with credit cards can help retirees reduce debts while still having convenient access to their money. It will also limit them to spending, as they will only spend what they have. Many individuals have adapted to spending more than they have, and they find it so difficult to return to effectively manage their finances.
Comparing the costs of debit cards to credit cards can earn you substantial savings in the long term, furthermore it still provides you with the flexibility to make your Visa and Mastercard purchases without the temptation of blowing your budget.
It is important for retired people to have appropriate debt management skills so that they can have a debt-free retirement. When you retire without debts, you will be able to focus on other things, such as leisure activities, rather than looking for debt solutions. As you near your retirement, you should aim to pay off your credit card debts, to make the most out of retirement.Back to top