Do you think that opting for debt consolidation while in retirement is a good financial move? If you carried debt over to your retirement, you know that you need to do something about it. According to statistics, more and more retirees carry debt into retirement – specifically mortgage debt. As much as possible, you have to eliminate debt before you retire because your income will no longer be as big as before. Not only that, you no longer have the same opportunities to earn money in case your finances fall short.
You cannot ignore the debt and you have to start taking a more active role in dealing with it. Fortunately, there are various debt solutions that you can use to help you get out of debt during retirement. For now, your option would be to look for a program that you can afford to pay.
This is why debt consolidation should be an option that you should consider.
When you consolidate your debts, you are literally combining all your balance under one credit account. The result is having only one payment each month. Not only that, this new credit account should have a lower interest rate compared to the average of the debts you plan to consolidate. If you cannot have that, then it would not make sense to consolidate.
Now that you have an idea what debt consolidation is all about, it is time to find out why you should consider it as a debt solution once you retire.
Benefits of debt consolidation during retirement
There are two important benefits to consolidating debt while you are in retirement.
You manage your payment better
First of all, it becomes easier to manage all your debt payments. Instead of monitoring various debts, you only have to track one monthly payment. This can be really helpful for those who want to have less stress when they reach retirement. By combining your debts, you can simplify your financial obligations.
When you have a lot of debt payments to track, it can sometimes feel really overwhelming. It is not just simplifying your payments. It is also making you feel like your debts are not as burdensome as you thought it was. This will help ease the stress that you usually felt whenever you think about your debts.
Since your payments are simpler and you are feeling less stressed, you can spend more time trying to find out how you can speed up the debt relief process. You can choose to earn extra so you can add to your payments – or at least give your retirement fund a boost.
You get to lower your payment every month
Another thing that you can benefit from debt consolidation is a lower payment each month. This can be really helpful for retirees who never thought that their retirement can be quite costly. According to reports, 44% of retirees found that their healthcare expenses were higher than what they initially expected. One of the dangers when retiring is having your funds expire before you. The older you get, the more you need when it comes to healthcare expenses. But if it is really as costly as the reports reveal, then that would put your retirement funds in jeopardy. Not only that, it can compromise your ability to get the right medical treatment when you need it the most.
If you have debts, it can compromise your finances further. This is why you might need to consolidate your debts so you can lower your monthly payments. When you apply for a new credit account, you need to ensure that the repayment plan will allow you to make lower installments. This will help you manage your funds better and keep it from running out.
Disadvantages of consolidating debt in retirement
While the benefits seem to make debt consolidation the perfect debt relief program for retirees, it also has a couple of disadvantages. You need to understand what these are so you can ensure that these will not compromise your progress towards debt freedom.
Here are two disadvantages that you need to look out for when you try to consolidate debt.
You run the risk of paying for a longer time
If you think that the lower monthly payments are appealing, you have to know that there is a catch to that. You can pay lower but you will have to do it over a longer period. In debt consolidation, there is no reduction of what you owe. You will pay the same amount but you can change the payment terms according to what is easier on your budget. And if that means a lower monthly amount, that can be arranged. However, if you pay a smaller amount, it will naturally take you longer to completely pay off your debts.
Also, one of the reasons why some people prefer a shorter debt consolidation loan repayment program is that they get to save money in the process. A longer repayment period usually leads to a bigger payment amount in the end. That being said, debt consolidation is great if you need some elbow room with your budget but you end up paying a lot more when you total everything up.
Credit card debt consolidation can come out more expensive
This is actually applicable to retirees who opted to use balance transfer cards to pay off their multiple card accounts. One of the most mentioned tips to succeed with credit card consolidation is to make sure you pay everything within the introductory period. This is the timeframe where your lender gives you a low-interest rate of up to 0%. When you go over that period, you could be looking at an even higher interest rate and you are back where you started, only you are paying more.
The best thing to do when you using debt consolidation in retirement is to make sure that you get to pay off the account in time. It is even better when you pay it off well before the due date. The last thing you need is paying more than you should in retirement and putting your nest egg in peril. If you cannot pay it all off during that time, then it might be better to find a different debt solution. At the very least, you should be able to pay a significant part of the debt.
With both the benefits and disadvantages discussed, do you still think it is a good idea to pay off your debt through debt consolidation while you are retired? If not, there are other effective debt relief programs that you can use to achieve debt freedom.