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Paying Down Debt Before You Retire: 5 Smart Tips

Paying Down Debt Before You Retire: 5 Smart Tips

Author: Rosie Copp

As you get closer and closer to Day #1 of retirement, you may be starting to stress if you are still paying off debts.

Paying down your debt before retirement can be important for achieving financial success. While some Australians may be financially secure and still carry their debt into retirement, it also can be a huge weight off your shoulders to be 100% debt-free.

The good news is there are steps you can take now to get you ready for your golden years. The best time to start is now while you’ve still got time on your side and a regular income through the door.

Finding the appropriate financial approach that matches your lifestyle and financial habits, on the other hand, might be difficult. Take the time to plan your financial approach so you can step into retirement with comfort, security, and peace of mind.

1. Crunch the Numbers

The first step is to understand what debts you currently owe. Whether it’s your mortgage or a personal loan, be sure you are aware of the amounts you owe as well as the interest rates and annual fees.

2. Get Serious About Managing Your Debt

There are so many different debt repayment options for you to consider. The hard part is choosing the one that will work for your situation and put you in the best financial situation.

Consider:

  • The Debt Snowball Approach
  • The Debt Avalanche Approach

The debt snowball approach accelerates as it progresses, much like rolling a snowball over the ground. Begin by paying off your obligations in order of importance. Sort your debts by size and start with the least. Then you pay the minimum on all other payments and send additional money to that tiny bill until it is gone. Then, repeat the process with the remaining debts.

Alternatively, the debt avalanche technique employs a similar approach but arranges debts according to the interest rate. First, establish a list of all your loans, starting with the highest interest rate and working your way down. You then prioritise paying off the debt with the highest interest rate while making minimum payments on the loan with the lowest interest rate. This reduces the amount of interest you pay, freeing you more income to pay off other debt.

3. Consider Your Income Sources in Retirement

As you start to near your retirement, it’s important to be aware of where you will get your income from so you can enjoy a comfortable lifestyle without incurring additional debt.

While you will no longer have your regular salary to rely on, you may have income streams from the following:

  • Superannuation fund
  • Personal Savings
  • Investments
  • Inheritances
  • The Age Pension

Start planning your cash flow so you can ensure you have the financial means to be retirement-ready.

4. Seek Expert Advice

Most importantly, as you plan for your transition to retirement, it’s important to know where your money is, and what it is doing.

Having your money sitting in one place mightn’t be the best thing for your retirement savings. Consider diversified strategies to grow your money so you can maximise your superannuation and funds for retirement.

To make smart, informed financial decisions, you may want to engage expert advice from an experienced financial planner.

There’s no overnight formula to clearing off debt and saving money for retirement. It takes time and a financial strategy.

Spending the time to sit down and prepare now with Central Coast Financial Planning Group will undoubtedly pay off in the long run.

If you want financial security and peace of mind, talk with a financial adviser on the Central Coast so you can talk about the best strategies for debt repayments, retirement planning, and wealth creation. Get in touch with us today to arrange a chat!

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