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1 in 5 will retire in debt
Earlier this year, AOL reported 1 in 5 people retiring in 2016 will be doing so in debt. It is a worrying trend that shows little sign of easing over the coming years.
If you are retiring while still in debt, you’ll know this can bring about major financial difficulties when you should be enjoying the fruits of labour and relaxing. As you will not be earning an income anymore, it will be much more difficult for you to repay your debts. The money you use to pay off debts from now on will come from the pension you have saved up for over your working life.
However there are some options available to you. We’ve put together some options for you if you are currently in or facing retirement with debts. Each benefit has its pro’s and con’s but really it’s up to you to figure out which one would suit you best.
Go back to work
The easiest and most obvious solution would be to go back to work. However, this is really only an option for those who retire in good health. Going back to work, full or part time, will help to gain more money to pay off debts through creating a new revenue stream.
Reverse (or Lifetime) Mortgage
A reverse mortgage works in reverse to your traditional mortgage. This is where you take out a loan against the equity you have already accumulated on your property. Lenders can pay the loan to you through a number of ways, as one lump sum, as a monthly income or as a line of credit there for you to access as and when you need it.
You, the borrower, do not have to make repayments and still retain ownership of your house. You will only have to pay back this loan when the last living homeowner sells the house, moves to a new house or country, goes into full time care residence or passes away.
However, a reverse mortgage may not be an option for you. Instead you can refinance your mortgage, this is where you may be able to access some of the equity from your home. This will allow you to pay off your other debt, which is likely to have a higher rate. On some occasions, refinancing can lower the interest rate of your mortgage therefore lowering the cost of your future repayments.
There are many different types of mortgage refinancing programmes available, so it is worth researching the market in advance. You may still have a mortgage to pay after this process but you will pay off any other debts and potentially lower your mortgage rate.
Another option for some is debt consolidation, this is when you replace one kind of debt with another, usually at a lower rate. The easiest example of this is would be to take your current credit card debt and pay it off with another credit card with a smaller interest rate. This will save you money in the long run, though you do still have the same level of debt initially, the interest rate and repayments will be lower.
There are many options available to you if you are retired and are currently paying off debts. Whatever your situation, if you are struggling or need advice, you should seek help from a licensed, unbiased professional.