Should You Eliminate Debt Before Reaching Retirement?

Should You Eliminate Debt Before Reaching Retirement?

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Today on the blog we have a guest post from Good Nelly about eliminating debt before retirement. She shares some solid advice about the best ways to handle your debt and all of the benefits of becoming debt free. If debt is something that is burdening your financial journey, this article is definitely one you should read. Enjoy!

Eliminating debts might be the most important strategy that retirees may implement before retirement. Conventional investors may suggest that it would be wise to start investing or saving for retirement as soon as you can, whether or not you have a good emergency fund or huge debts to pay off. But you can’t ignore the fact that stepping into retirement will be much expensive if you carry a huge debt load on your shoulder. Life will be amazing and much better if you can pay off your debts as early as possible, before retirement.

It is not too late for you, even if you are at the doorway of your retirement now. Like any other individual, you still have the chance to get serious and find ways to eliminate debt before retirement.

But first, you must know why it is wise to eliminate debts before retirement.

Why You Should Pay Off Debt Before Retirement

There are few core reasons, let’s put some light on them.

1. Increases your financial freedom

Debt can cut off your financial freedom from your life. You can’t leave a bad job just because you have debts. You can’t explore the world by going for a long tour, just because you have debts and you can’t afford that much traveling expenses. And you can’t help your family with open hands, just because you have debts.

But when you pay off your debts, you’re free to do whatever you want with your hard-earned money. So, this is one of the most important aspects of financial planning that you should really look forward to, and start paying off debt before retirement hits you hard

2. Improves cash flow

You may improve your cash flow by paying off debts. It is more effective than investing in other sectors. Paying off $20,000 credit card balances with a $500 monthly payment may surely improve your finances more than investing in the uncertain stock market. The annual cash flow from investment might be a lot lesser than the monthly payments you can save by consolidating your credit card debts.

If you can find the ways to eliminate debt before you retire, you’ll have the chance to channel the cash flow into savings once the debt is paid off. This way you can create a bigger retirement saving fund for your old days.

3. Lowers your cost of living

You might see that your cost of living is rising day-by-day. But, on the other hand, your retirement planning needs a low cost of living to adjust within your income. This is the ideal moment when you will learn why you should pay off debt before retirement.

If you eliminate your debts through popular debt repayment options, you might be able to lower your cost of living.

How? Your debt payments require sufficient money every month…right? So after making those monthly debt payments, you might be left with a limited amount in your hand to spend on commodities. So, your cost of living will fall automatically.

The low cost of living reduces the requirement of income and encourages bigger savings.

4. Reduces your nervousness

You might be planning about retirement since last few months, but all of a sudden few questions might start lurking in your head! What would happen with your major bills? What will happen if you stop earning and gradually run out of money? If you can’t afford your mortgage payment, where will you spend your life?

This is called nervousness due to debts. Debts may make you worried for your future days. If you calculate the numbers and take suggestions from the financial experts, they would also point out the same issue. You still won’t be able to wipe out the nervousness until you pay off and eliminate your debts.

So, eliminating debt is a good remedy to your nervousness. Once your debt load is gone, you can save your money in a relaxed way.

Now let’s check out the types of debt that should be eliminated or paid off before retirement.

Debts you should tackle before retirement

Consider the list when you start following the ways to eliminate debt before retirement.

  1. Mortgage debts

A mortgage loan is a secured debt with long tenure. So, it’s very difficult to pay off a long-term loan within a short span of time, might be in just a few years. If you have the same scenario, it is impossible to pay it off with a limited income in retirement.

Best way to eliminate: You may move to a lower-cost rental home. Another option is to sell off your home and shift to a less expensive apartment. This way you can save on taxes, along with saving money on home repairs and maintenance. If you have enough equity, you can downsize into a less expensive home and put the money from your sale to increase your retirement funds.

  1. Credit card debts

Credit cards are normally called “revolving debt”. The principal part of the monthly payment (credit card balance) is normally borrowed back again in the following month or when needed.

Best way to eliminate: Credit card debts are difficult to pay off as it’s very easy to build up the debt again. The best strategy is to set a fixed amount per month and use that money to pay the cards until they are fully paid off. For that reason, a reverse mortgage loan can be ideal for senior citizens to pay off credit card debts. But, you should also put away your cards to avoid incurring more credit balances.

You may also use a debt consolidation methods named “balance transfer” to eliminate your credit card bills.

  1. Auto loan debts

Taking out an auto loan isn’t bad if you can handle the payment. It is better to spread out the cost of buying a car, rather than investing a big portion of money from your savings account. Here are a few things you should keep in mind:

  • Make the down payment as much as possible. It’ll minimize the monthly debt payment.
  • Your car loan payment shouldn’t exceed 10% of your monthly income.
  • Try to keep the loan term within 5 years. After 5 years you’ll start facing additional costs like car repair bills.
  • Don’t buy cars in every 5 years by trading the old one. It’ll keep the debt cycle running.

Best way to eliminate: You might take out a personal loan to pay off your car payments. But if the car loan amount is too high, don’t take the risk. If the remaining amount is low, use your savings to clear out the debt. It’ll increase your cash flow and give you peace of mind.

  1. Student loan debts

In most of the scenarios, the retiree works as a cosigner for the student loan debt on one of their kids. For that reason, you must eliminate this debt before retiring even if your kid is making the payments on time. A sudden situation like a divorce, unemployment, recession, or a medical emergency may trigger changes and you’ll be on a grave danger.

Best way to eliminate: Pay off the debt by using a personal loan, or from your savings. If you can’t pay off the loan, get your release from being the cosigner. But there are few specifications that should be fulfilled before getting the release from the lender.

  1. Medical debts

Medical charges are costly, so the bills would be also higher. But before making the payment, always cut off unauthorized expenses like – unnecessary procedures or unused dressings or supplies, coding mistakes while preparing medicine bills, insurance errors, etc.

Best way to eliminate: Challenge unfair billing if required. If possible, negotiate with the hospital while the bill is getting ready. Keep your insurance papers updated to opt for maximum benefits. If your medical bills are too high to afford, you can join a debt settlement program and reduce your total bill amount.


If you believe that getting out of debt before retirement may give you the greatest positive vibe while starting your retirement journey, then you should definitely focus on doing that. Find out the ways to eliminate debt, give yourself enough time to plan your money moves, save for the coming days, and live the future with freedom.

Author’s Bio: Good Nelly is a financial writer who lives in Milwaukee, Wisconsin. She started her financial journey in 2007. Good Nelly maintains a blog My Way Of Viewing. Through her writing, she has helped people overcome their debt problems and has solved personal finance related queries. She has also written for some other websites/blogs like Camp Fire Finance, XRAYVSN, Diana On A Dime, Peerless Money Mentor, and more. You can contact her at

8 thoughts on “Should You Eliminate Debt Before Reaching Retirement?”

  1. My wife and I were debt free including a paid for house prior to retiring early. I do agree it is a good plan. I think if someone has a track record at successful rental of houses or flipping them and enjoys that as a side hustle then businesses debt for that would be resonable. But consumer debt is a bad idea in retirement, it indicates you can’t afford your lifestyle and that’s not sustainable.

    • Totally agree with you there, Steve. Only a small percentage of people who actively invest in real estate should have debt entering retirement. Those recurring monthly payments can absolutely cripple you if something happens to your cash flow.

  2. Debt free (including mortgage) retirement life should be everyone’s goal. Most retirees are living on fixed smaller income which makes it harder for them to afford paying debts. As much as possible retire your debt before retirement.

    • Yes it’s definitley a lot harder to repay your debts when you’re living on social security or some other fixed income plan. It’s best to wipe out as much debt as possible before retirement.

  3. In my case, I was wracking up consumer credit card and personal loan debt because of bad spending habits. Even if I attempted to save during this time, until I addressed the core problem, the progress would have been minimal. We are just about to be credit card + personal loan debt free and can invest over 50% of our household income. Being in my mid-30’s I have lost some good time, but I’m grateful for the experience in showing me how my spending was not giving me what I wanted.

    With that said, I do regret not meeting my companies 401k match. That is one thing I would do different.

    • Thanks for stopping by, Chris! Debt can absolutely cripple some people’s personal finances, but it’s awesome to hear that you are nearly debt free and now able to invest over 50% of your income. Even in your mid-30s, a 50% savings rate puts you on track to retire in ~17 years from now in your early 50s… I’d say you’re crushing compared to your peers!

      No reason to reflect on the past, now it’s just optimizing into the future. Good luck!

  4. I fully endorse the decision to be debt free by retirement. By having all your debt paid off, you can have financial peace of mind, especially when you are no longer bringing in an income.

    You are then better able to cope with anything life throws at you without having to worry about making the minimum payment.

    • Definitely. It’s certainly a good idea to rid yourself of debt before you pull the retirement trigger. One event could cause a complete financial collapse for someone with recurring payments.

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