3593: 3 Debts You Should Eliminate Before Retirement by Kumiko of The Budget Mom on Retirement Debt Strategy

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[00:01:00] This is Optimal Finance Daily. 3 Debts You Should Eliminate Before Retirement by Kumiko of TheBudgetMom.com Being in debt while you're still working can be a nagging problem and even prevent you from saving for retirement. But carrying that debt into retirement can also be dangerous, and in some cases, even more so.

[00:01:22] When you're in retirement, you're working with a fixed income. The simple truth is, you can't afford to have a majority of your income eaten up by debt payments. To get the most out of your retirement, you need to make sure you have as much money as possible to fund the lifestyle you desire. Here are three types of debt you should work on eliminating before you retire. Number one, unsecured debt. If you're living with a fixed retirement income, you might not be able to afford to make the extra payments on the money owed.

[00:01:52] If you're spending years in repayment, much of your fixed income ends up going to high interest payments. Credit card debt can not only wreck your credit score, but it's also costly to pay off. For example, if you have a credit card with a $5,000 balance with 18% interest, it'll take you roughly 84 months to pay it off. Not only that, but you'll pay close to $4,320 in interest over that period. How to pay it off

[00:02:22] It's best to come up with a plan to eliminate unsecured debt during your working years. A straightforward approach to paying off credit card debt is to list out your present debts, figure out which cards charge the most interest, and pay those off first before moving on to the ones with less interest. Taking advantage of balance transfers to eliminate debt faster might also be an option.

[00:02:45] You can transfer your total balance to a card with a lower interest rate than what you are currently paying to save time and money on interest payments. Number two, student loan debt. Student loans are often viewed as a younger age problem, but the truth is more and more older Americans are finding themselves on the hook for educational loans. Not only is this debt they took out for themselves, but the major problem is when parents take out loans for their children's education.

[00:03:13] The process of being accepted for a Parent PLUS loan is minimal. There's only a basic credit check and no underwriting to determine whether the borrower has the income or ability to repay the loans. With emotions evolved, it's easy to take on more than you can handle. You may not realize it, but in retirement, even a small amount can prove difficult to repay. Funding your child's education can be an emotional topic.

[00:03:39] I would love to help my son pay for college, but I won't sacrifice my own retirement to do so. Instead, I took another approach and started planning and saving early for his educational costs. Two weeks after my son was born, I opened a UTMA account. Throughout the year, I saved my leftover change from my cash spending and invested in his UTMA at the end of the year.

[00:04:02] I'll save what I can during my working years, and I'll help him as much as I can financially, but only to a limit that I can honestly afford. The truth is, helping my son pay for his education is important to me, but he also has more time than me to pay off his student loans. When I'm a senior living on a fixed income, I won't be able to generate more money to repay these debts, and I can't replace the retirement savings that I take out for repayment. How to pay it off

[00:04:31] When you're in a financial bind, there are different ways to repay your student loan debts that make it a little easier on your budget. For example, if you only have direct loans, there are income-driven repayment plans that allow you to make monthly payments based on your income and family size. If you decide to use one of these options, you have to keep in mind that it will extend the period of time that you'll be paying off your student loans.

[00:04:55] I recommend using these options if you're in a financial hard spot, but make sure your time on these plans is limited. If you can, I recommend sticking to the standard repayment plan, which will pay off your student loans in the shortest amount of time while saving you the most money on interest. There's an option to consolidate Parent PLUS loans. You could possibly decrease high interest rates, but the parent must qualify based on credit and income. Refinancing is another option for Parent PLUS loans.

[00:05:26] And number three, mortgage debt. Many people who own homes or property take out 30-year mortgages in their early 30s and manage to pay off their loans by the time they retire. But what happens when you buy a home or property later in life? If you end up carrying mortgage debt into retirement, that'll make what's already your greatest monthly expense even more burdensome. Just like with people, the older a home becomes, the more money it costs to keep them healthy.

[00:05:54] Dealing with a mortgage payment and the upkeep costs of owning an older home during retirement can cause substantial income restrictions. If you work on getting rid of your mortgage payment before retirement, that's one significant bill you don't have to worry about. If you can pay off your mortgage before retirement, you can significantly decrease your housing costs, eliminate your biggest expense, and you can make your savings last much longer.

[00:06:19] If you can, try buying a home on the low end of what you can afford and avoid refinancing your home, which usually extends your repayment period. How to pay it off One way to tackle your mortgage debt is by making extra payments to your loan. Think of it this way. The more extra payments you make on your mortgage, the more each one of your regular payments goes straight to the principal balance.

[00:06:44] Try making an additional house payment every quarter or dividing your mortgage payment by 12 and add that amount to each monthly mortgage payment that you make. Just a word of caution. If you're thinking about making extra mortgage payments, make sure you talk to your mortgage company because they might charge prepayment penalties. When completing an extra mortgage payment, make sure it's getting applied to the principal balance of your loan and not next month's payment.

[00:07:09] It's critical to take steps to ensure you have an effective debt management strategy in place and to take early action steps to eliminate debt before you retire. You just listened to the post titled Three Debts You Should Eliminate Before Retirement by Kimiko of TheBudgetMom.com. My philosophy with money? It's a tool for freedom, not a source of anxiety.

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[00:08:34] Terms and conditions apply. This is a paid endorsement of Wealthfront. Client experiences will vary. Wealthfront brokerage is not a bank. The base APY is as of January 30th, 2026 and subject to change. For more information, please see the episode description. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more.

[00:09:02] Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Another reason to tackle debt well before retirement is that you don't want to be battling compound interest when you're on a fixed income.

[00:09:28] Compound interest, a powerful financial concept that can work wonders when saving and investing, becomes a significant burden when one carries debt. Unlike simple interest, which is calculated only on the principal amount, compound interest accrues not only on the initial debt, but also on any accumulated interest, leading to exponential growth in debt over time. This means that even if one makes minimum payments,

[00:09:54] the debt continues to grow as interest accrues on both the principal amount and any unpaid interest. The longer the debt remains unpaid, the more significant the impact of compound interest becomes. Also, high interest rates exasperate the effects of compound interest, leading to even faster accumulation of debt. This can result in individuals paying significantly more in interest charges over the long term, further eroding their financial stability.

[00:10:22] Overall, compound interest working against you when you have debt highlights the importance of addressing debt promptly. And prioritizing repayment to minimize its detrimental effects on financial well-being. But that will do it for today. Have a great day and weekend. And I'll be back here tomorrow as usual, where your optimal life awaits.