Debt Consolidation: Can It Help If I'm Already Retired?

Erika Napoletano, February 2019

Debt Consolidation: Can It Help If I'm Already Retired?

If you've found yourself retired, but still carrying debt, you might wonder if debt consolidation during retirement makes sense. Your first inclination might be to put money away in savings versus a more aggressive strategy to pay down your existing debt. However, there are ways to continue saving during retirement while you pay off your debt.


Let's explore ways to leverage your assets and current financial relationships to access the cash you need to lighten your overall financial load. You might discover that debt consolidation is the right choice for you, and perhaps you'll have a more manageable financial life than you thought possible.

Breaking Down Your Debt

According to CNBC, boomers carry an average credit card balance of $6,747 and $25,812 in total nonmortgage debt (including credit cards, store cards, personal loans and other nonmortgage accounts). That might be an intimidating figure when you're looking at financing your retirement years, but debt consolidation can help make the debt you carry more manageable and potentially save you money over the long term.

A simple way to access your debt portfolio is to request a free copy of your credit report once every 12 months from all three credit bureaus — Equifax, Experian, and TransUnion. These reports are powerful tools because you can go line by line and see current balances and monthly payments. From here, you can break down your debt into categories like credit cards, mortgage, auto loans, and personal loans. You might have to supplement what you find on your credit reports with some additional lender information, but once you have this information sorted out, look at debt consolidation options that make sense for your financial situation.

Assessing Your Mortgage

Refinancing your mortgage could be a savvy strategy to help consolidate your debt. Before taking out any loan secured by your home's equity, meet with a mortgage loan officer to assess how long you plan on staying in the house, the amount of equity you have in your home, current real estate market conditions, and the overall costs of refinancing.

The cash-in-hand from refinancing could mean access to funds at a lower interest rate which can be used to pay off debt from higher interest loans or lines of credit like credit cards. A cash-out refinance typically has some closing costs associated with it. Talk to your mortgage loan officer regarding low closing cost options and finding the right product that best meets your financial needs.

Leveraging Your Home's Equity

Another possible solution is to use your home's equity to power your debt consolidation goals. A home equity line of credit (HELOC) gives you the flexibility of a revolving line of funds secured by your home's equity without the burden of paying upfront closing costs you would have with a refinance mortgage. You can use this credit line to pay off various debts like higher interest rate credit cards, auto loans, and other consumer debt.

With competitive interest rates that take the form of variable and fixed rate options, consolidating your debt with a HELOC could provide a lower-risk strategy that could reduce the number of payments you make each month and the overall interest paid. When evaluating a HELOC as a potential debt consolidation option, it's important to consider how long you plan to be in your home, the amount of equity you have in your home, your current interest rate on debt owed versus the interest rate offered for your HELOC, and the overall cost savings when using this strategy.

Personal Loans

A personal loan may be a useful tool for debt consolidation for higher interest rate loans or credit card debt. With no collateral required to secure the loan, you could gain quick and easy access to funds to help you consolidate your debt. Your new, single monthly payment with a personal loan could speed up repayment and give you a bit of financial breathing room to build your savings1 while repaying the loan. Remember to save the difference between what you were paying before along with your new, lower payment in a savings account.

Credit Card Strategies

If you've found that a bit of credit card debt has followed you into your retirement, you could consider consolidating your debt and potentially saving with a new credit card that has a an introductory interest rate.

Look for a credit card with a zero percent introductory annual percentage rate (APR) of at least a year. This way, you can transfer your existing balances to your new card, cut the interest you're paying to zero for a defined period, and pay down multiple credit cards on a new card. When researching cards, make sure you compare the introductory APR period and overall costs of card ownership (annual fees, ongoing interest rate after promotional period, etc.) before making the leap. Be sure to do your research when looking for a card - cards with a low continuing APR even after the intro period is an important factor to consider.

Navigating Student Loan Debt

If you have carried student loan debt into your retirement years, you're not alone. More retirees are facing student loan debt than ever before, a combination of carryover debt from their own educations and Parent Plus loans used to help fund a child or grandchild's education. The Federal Reserve states that as of 2018, 2.8 million people over the age of 60 have student loan debt.

If you have federal loans, speak to your lender about possible payment programs that may be right for your financial situation.

As you move forward to consider all of the options available for debt consolidation, always keep in mind that there can be a balance between debt and a fulfilling lifestyle. Debt consolidation can help you lower payments, free up cash to move into savings each month, and speed your path toward low- to no-debt living as you achieve the financial freedom to enjoy the years ahead.

All credit products are subject to credit approval.

1

Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.

NOTICE: This is not a commitment to lend or extend credit. Conditions and restrictions may apply. Information and offers are subject to change without notice. All loans are subject to credit and collateral approval. Not all loans or products are available in all states.

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