Retiring Soon, But Have Debt? 3 Options to Consider First | Global News Avenue

If you’re approaching retirement and worried about debt, you’re not alone: ​​40% of Americans worry that debt will affect their quality of life in the future, according to Allianz Life’s 2024 Annual Retirement Study. Like many people, you may be wondering whether it makes sense to seek debt relief before retirement.

On the one hand, getting out of debt can be liberating. But on the other hand, some debt relief options can hurt your credit and affect your ability to qualify for future financing. Free consultation session Credit counseling services This is a great first step in giving you a complete understanding of your financial situation and your options.

Does it make sense to get debt relief before retirement?

Entering retirement debt-free is ideal, but may not be possible for many people. should one pursue debt relief (and the type of debt relief you seek) depends on your situation and the type of debt you have.

Generally speaking, it makes sense to prioritize paying off high-interest debt like credit card balances before retirement. This type of debt can grow quickly due to high interest charges, making it more difficult to manage. Growing balances can erode your retirement savings and reduce your quality of life. So if you have a lot of credit card debt or other high-interest debt, it’s worth considering debt relief, especially since you can get help and learn about your options completely free of charge.

Common Debt Relief Options

Common debt relief options include credit counseling, debt settlement, and bankruptcy. Bankruptcy is usually reserved for those who are in poor financial shape, although it may be preferable to costly debt settlement. Here’s how each type of debt relief works:

• Credit counseling: credit reference agency Typically a non-profit organization that provides assistance with debt management and repayment. They offer free consultations and other free services, and debt management planwhich can help you pay off your debt at a lower interest rate. This option is relatively better for your credit, but you must pay off the entire debt.
• debt settlement: debt settlement This occurs when a creditor forgives all or part of your debt, sometimes in exchange for a lump sum or payment plan. You can seek debt settlement on your own or hire a company; a debt settlement company negotiates with creditors on your behalf and charges a hefty fee if it can help you reduce your debt. This option is relatively bad for your credit, but you don’t have to pay off the entire debt.
• Bankruptcy: Bankruptcy Involves working with the legal system to settle your debts or liquidating your assets to pay off debts. This option is also relatively bad for your credit, but you don’t have to pay off the entire debt.

The consequences of debt relief

While all of the above options can help reduce your debt burden, there are positive and negative aspects to each option.

That said, working with a credit counselor generally has fewer consequences than debt settlement or bankruptcy, although it will require you to pay off your entire debt over time. Here are the potential consequences of each option:

Credit counseling

advantage

• Free initial consultation to understand your debt situation
• Some services require a fee, but others are always free
• Fees are on a sliding scale based on financial hardship; services may be free if you qualify
• A debt management plan may lower your interest rate, thereby reducing the total amount you have to repay
• Credit counseling services A debt management plan won’t affect you credit score

shortcoming

• Debt must be repaid in full
• Resolving debt can take years
• It may be necessary to close your credit card account

debt settlement

advantage

• Possibility of full or partial debt forgiveness
• May help avoid debt being sent to collections
• debt settlement The company can negotiate with your creditors for you

shortcoming

• May have to pay high fees
• There is no guarantee that debts will be paid off
• Balance may increase during negotiation
• It can take years to resolve debt
• Discharged debt may be taxable
• Will seriously damage your credit
• Debt can remain on your credit report for up to 7 years from the time of delinquency.
• It may be difficult to qualify for a loan later

Bankruptcy

advantage

• Possibility of full or partial debt forgiveness
• Certain back taxes may qualify for dismissal
• When you submit your file, a Automatically stay Prevent creditors from trying to collect debt from you
• Chapter 13 Bankruptcy Foreclosure proceedings can be stopped

shortcoming

• Filing and court fees can be expensive
• Assets may need to be liquidated to pay debts
• Can seriously damage your credit
• Can stay on your credit report for 7-10 years
• It may be difficult to qualify for a loan later
• May still need to bear some debt

retirement savings plan

If debt is a barrier save for retirementconsider working with a credit counselor to get on the right track. But you can also work hard Improve your financial situation in other ways As you prepare for retirement. Review your budget to determine if you can cut any expenses, allocate the windfall to your retirement savings, and consider pursuing a side hustle that aligns with your interests.