As you prepare for retirement, you're probably imagining your golden years – traveling to places you haven't gone before or visiting friends and family now that you have plenty of time on your hands. While finally exiting the workforce gives you more freedom and time, you may not be able to escape the financial obligations that come with retirement if you have debt.
Before you decide to retire, go over your current finances and budget and decide whether you will have enough funds for the duration of your retirement, which is a primary concern for many. About 1 in 4 people are not sure whether they will have a comfortable retirement, according to the 2014 Retirement Confidence Survey released by the Employee Benefit Research Institute.
One of the main reasons why you might have trouble saving for retirement is debt. A separate EBRI report found the number of heads of U.S. households age 55 or older with debt rose 65.4 percent in 2013, up from 63.4 percent in 2010.
As debt becomes a greater issue, you should think about how to reduce your debt levels, allowing you to relax and enjoy retirement more fully.
Here are ways to reduce your debt for a more comfortable retirement:
1. Restructure Your Budget
Take a look at your current annual or monthly budget and see whether you have allocated enough money toward your retirement. Then determine whether you can reduce spending in the budget to put that money toward your retirement savings. As you restructure your budget, consider whether your employer matches a certain percentage of your contributions to your retirement fund to take advantage of the maximum employer contribution.
2. Take on Extra Work
Although you probably already have a busy lifestyle that makes it hard to squeeze in another job, you could decide to do freelance work or take on a side gig. Use your existing skills – whether that's woodworking, writing or design – to offer paid services and build your income throughout your working years. Imagine what you can do with this extra money when you have more time to use it during retirement.
"Refinancing is a great way to lower your monthly payments."
3. Refinance Your Loans
Whether you have a small or large debt load, refinancing is a great way to lower your monthly payments for installment loans, such as a mortgage. If interest rates are lower compared to when you first received the loan, you could save money by refinancing to a smaller interest rate or switch to a shorter-term loan to reduce your interest payments.
4. Transfer Credit Card Balances
In case you find yourself with a high credit card balance, you could lower your debt by transferring your balances to a lower-interest card. You could save hundreds or thousands of dollars by applying for a new card and transferring your balance to save money on interest. Some cards offer an introductory period where the interest rate is 0 percent, giving you the chance to come up with enough money to pay off your balance completely before the intro offer ends.
5. Pay More Each Month
When you pay more on your monthly credit obligations compared to the minimum payment, you will pay off your debt faster and potentially cut down on the total interest paid. Use a debt repayment calculator and see how much you can save each month by paying an extra $50, $100, or more on your loan payments each month. For example, you could have a $10,000 loan with 7 percent annual interest and a loan term of 60 months. Normally, you pay about $198, but paying an extra $200 each month on a $10,000 loan for 60 months allows you to shorten this repayment period by 2 years and 8 months. In addition, you could save $1,036 on interest by accelerating payments or coming up with extra payments each year.
As for credit cards, be sure to pay off your balance each month or at least pay more than the minimum.
While you may think you have plenty of time to save up for retirement, playing catch up with your retirement savings is not ideal. Pay down your debt so you can have a more enjoyable retirement.