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How do I retire my debts before I do?

I am about to retire and have $15,000 in debt I would like to pay off before I stop working. What are my options?

I am female who is almost 64 years old and looking at retiring in a little over a year. My husband has already retired. We just finished paying off our second mortgage but still owe about $15,000 in credit card bills (one of which is a variable interest HELOC). Would it be be better to move all the other balances to the HELOC or to get a bill consolidation loan? We want to get them all paid off by the time I retire.

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Bill's Answer
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With your upcoming retirement, I don't think you should incur more secured debt in order to deal with the unsecured credit card debt. The new bill consolidation loan will use the equity in your home as collateral, so you end up with another lien on your home after working so diligently to pay off your second mortgage. You will also pay a large additional amount in closing costs if you were to get another loan.

One additional potential problem is that you want to pay off all debt within the year before you retire, meaning that you will have a very short term over which to amortize the expense of a new loan. That would raise the effective interest rate for the new loan to an astronomical figure that makes no financial sense, especially since you have alternatives.

As for moving your debt to your current HELOC, that makes more sense than taking a new loan, but I still think you should avoid additional secured debt if you can avoid it; if you are unable to pay the HELOC for any reason, you could risk of losing your home. Although credit card debt charge higher interest rates, they are much safer for someone who is nearing retirement and has no mortgages on his or her home.

You don’t seem to be in a particular hardship. The major financial change in the near term will be your retirement, which, I am confident, has been long anticipated and, hopefully, well planned. Between your written lines I detect good attention to your financial well-being over your working life, the best evidence of which is your ability to retire with a home free-and-clear. So, my best analysis and advice would strongly urge you to put the idea of new debt in furtherance of your stated goals aside.

Bankruptcy

Rather than bankruptcy, which is reserved for only the most financially impaired debtors, or a private debt management service such as credit counseling or settlement as described above, I believe you need an individual, do-it-yourself debt reduction method that calls for you to pay the debt off as quickly as possible, given your current cash needs.

Accelerator

The method basically calls for you to compare your net income with your necessary expenses, subtract, and note the difference. Some methods call this difference the "accelerator." It makes the pay-off method work, slower or faster, depending on the amount. If the amount is too small to allow the payoff within the time desired, some means to increase the accelerator must be devised, such as part-time work by at least someone in the family or household

The basic scheme is to pay the aggregate amount previously used for all of the cards plus the accelerator on the account of one target card each month until it is paid. During these months you make the required minimum payment on each non-target account. Once the first account is paid-in-full, target the second card in the same way, etc. You see how much the payment grows as more cards are eliminated. Therefore, the targets fall in quicker and quicker succession.

This method would allow you to remain current on all payments, therefore maintaining or possibly improving your credit rating, while saving you money and drastically cutting the total time to pay off the debts; however, it does require careful planning and consistent disposable monthly income, so it may not be the best choice if your income fluctuates or if you've had any problems making your minimum payments in the recent past. The Bills.com Debt Self-Help Center offers a wealth of information that may help you navigate the process.

Good luck in finding a means to pay off this debt that meets your financial and personal goals. I hope that you enjoy your retirement free of worries about making the mortgage payment and paying the credit card bills. I hope that the information I have provided helps you Find. Learn Save.

Best,

Bill

www.Bills.com

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