Retire With Debt and Credit Repair Could Be Necessary

Thanks to the baby boom, millions of Americans are now within just a handful of years of their official retirement ages, and many may be eyeing the date by which they will pull out of the workforce permanently. However, one mistake many older people may make when they call it a career is carrying a large amount of debt into their golden years, because this can significantly endanger their finances and credit.

The problem with having debts in retirement is actually rather simple to understand: When most people retire, they also see their income drop appreciably. In fact, while experts say that the minimum consumers should plan to have coming to them every year once they retire is about 75 or 80 percent of their final annual salary, a large number of recent polls show that many baby boomers are unlikely to receive even that much from their savings and pensions. As such, the amount of money they will have to contribute to their debts might necessarily drop, and if it doesn't — and they remain responsible about making sure all payments are sent in on-time and in full — that may instead mean they have less money to devote to their everyday living expenses.

Why can this be a problem?
For many retirees, having to choose between basic costs and sometimes considerable debt payments puts them in a rather uncomfortable position, and one that can be quite expensive no matter what happens in their lives.

This is particularly true when consumers choose to skip out on a monthly loan or credit card payment here or there. Not only can such a decision do major credit damage for whoever has those debts listed in their names, but it can also do even more financial harm as well. For instance, missing a payment on a credit card can lead to late payment fees that can be quite considerable, as well as penalty interest rates that significantly raise debt the longer they go unaddressed. Moreover, even just making the minimum payments into those balances, their debts will continue growing, and thus mean an even more significant portion of retirees' income will have to be devoted to paying it down in the future. Obviously, that can create a lot of problems for those living on a very fixed, smaller income.

All of this can serve to create a vicious cycle for those who are trying to enjoy their golden years, and significantly endanger their finances to the point that they might be contributing more toward their debt than other aspects of their lives.

Getting ahead of the game
It is for this reason that consumers may want to take the time to significantly reduce their debt ahead of retirement, as this can improve their credit standing and financial wherewithal in the final decade or less before they reach their golden years. The easiest way to do this, of course, is to avoid spending as much on credit cards, or taking out large amounts of other debts, and instead making more concerted efforts to pay down those balances to the point where they are either extremely low or even non-existent. The credit benefit here is that the total dollar amount of the balances carried by any borrower, versus their combined account limits, makes up 30 percent of one's ratings. That, in turn, means that steps to cut debt not only free up money in retirement, but also puts them in a better standing moving forward, which could mean more affordable terms for any financing they might need in the future.

In addition, cutting debt also means that borrowers can expect lower monthly minimum payments. The benefit of this is obvious: It means that more money can be devoted to other aspects of one's financial life, and also that the more money contributed to these payments, the more quickly debts fall. Further, lower monthly payments also make it far more likely that borrowers will be able to pay on time and in full, which serves to help them avoid late payment penalty fees and rates.

The ability to keep debts down and avoid late payments are crucial to maintaining a healthy credit rating, as these two factors alone combine to make up 65 percent of a score, and thus staying on the right side of these considerations is of the utmost importance in terms of both credit and finances.

Another important part of maintaining good credit and healthy finances is keeping close tabs on one's credit reports. Ordering these documents regularly can help borrowers spot any potentially unfair markings that may be dragging down their ratings. If any such entries are discovered, it can be helpful to contact a credit repair law firm, which may be able to help repair them quickly and with relative ease.