Six steps to enjoy a debt-free retirement

1 min readLast updated February 27, 2024by Rachel Carey

Becoming debt free in retirement takes careful planning and some strategic decision-making. But it’s worth it to enjoy the freedom this exciting new chapter has to offer.

The years leading up to retirement are a perfect time to focus on ditching the debt you’ve built up over your lifetime. In retirement, you have a limited income, so it’s important to prioritize getting rid of any debt – a mortgage, credit card arrears, and car loans – before you say goodbye to the working world. 

Why is it important to be debt free in retirement? 

According to the Transamerica Center for Retirement Studies (TCRS), 53 percent of workers say debt is interfering with their ability to save for retirement. In fact, according to TCRS, 78 percent of Baby Boomers carry debt as they approach retirement.   

Retirement is an exciting new chapter in your life. A time to enjoy some well-earned freedom and do the things you want. Maybe you want to pick up a new skill, spend more time with the grandkids, or explore the world a bit more. Unfortunately, with the burden of debt on your shoulders, your dream retirement lifestyle could be out of reach.   

If your debt is high, it may also interfere with your chosen retirement date. You might decide to continue working for a few more years to pay off your debts or even pick up a part-time job during retirement to keep paying off your loans.  

Becoming debt free in retirement means avoiding these constraints and living out your dream retirement lifestyle. It also means you will not pass debt on to your loved ones.  

Six steps to pay off debt before retirement 

So, to give you the best chance of enjoying your retirement without money worries, it’s sensible to dedicate your pre-retirement years to paying off as much debt as you can.   

While it’s not always possible to become fully debt free in retirement, everyone's situation and financial journey is different, and it’s worth making every effort possible to get there. 

Here is how to start:  

1. Prioritize debt repayments   

While the retirement planning advice is always to save, save, save, if you have mounting debts, prioritize paying them off before building up your savings. If you have multiple debts, always pay at least the minimum payment on each one to avoid debt snowballing. After that, pay off the debt with the highest interest rate first.   

2. Transfer your credit card balance  

Debt on your credit cards is one of the most common forms of debt. And if you don’t keep on top of it, it tends to escalate. Before you get to that point, try transferring the balance of one credit card to another. Moving as much of your debt as possible to the card with the lowest interest rate is best. This is a good way to avoid high-interest rates, but it should be a one-off tactic.   

3. Consider moving state  

While we’re not suggesting you flee the state to avoid paying debt, moving states can be financially beneficial – if you choose the right one. Tax, house prices, and living costs differ from state to state. So, if you plan on relocating for retirement, you could save money in the long term by packing up a bit earlier and enjoying a cheaper way of living sooner.  

4. Downsize your home 

Along with choosing the best state, you might also consider downsizing as part of your move. This could mean moving to a smaller home or moving in with your family. If you own your home, or most of it, selling up and moving to a smaller, cheaper location can give you a nice lump sum to use elsewhere, such as to clear outstanding debt.  

5. Redirect your “extra” income 

Receiving some income you were not expecting, such as a work bonus, is a huge thrill, and you might be tempted to spend this frivolously in the excitement of it all. Instead, put this money to work. Pay off whichever debt is most pressing. Yes, it might be the boring option, but your retirement will thank you.    

6. Get good financial advice  

Debt can be highly manageable as long as you seek advice. However, don’t just ignore the problem hoping it will go away. Financial advisors can provide expert advice and guidance to help you manage your financial burden. Your advisor will take the time to learn about your unique situation and create a tailored plan to meet your goals. This will involve helping you to strike the right balance between clearing debt and saving for your future.  

The bottom line 

A recent Unbiased 2023 Financial Confidence Survey revealed that only 21 percent of adults in the US felt confident about retirement planning. This is a worrying stat considering planning for your retirement is one of the most important aspects of financial planning.  

In the years before you retire, it’s crucial to take a step back and evaluate what you want your life to look like and how you will make it happen. As with any big life event – a wedding, buying a house, or having a child – you must have a plan. Retirement is no different.  

While retiring with some debt won’t mean the end of the world, it’s important you spend time in the lead-up to retirement prioritizing your finances and planning how to make the most of your money. 

If you’re wondering how to become debt free before retirement, seeking expert advice is best. Financial advisors are on hand to provide advice and guidance, taking the time to learn about your situation to create a plan to meet your financial goals. We can connect you to a trusted financial advisor tailored to your needs.   

Find an expert advisor    

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Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.