Got Debt in Your Golden Years? Here's How to Manage Debt in Retirement (2024)

Across the country, people of all ages struggle with debt. High-interest credit cards and never-ending student loans can make it difficult for average Americans to buy a house, take a vacation or even create a basic emergency fund.

According to AARP’s Financial Security Trends Survey from January 2023, 42% of Americans say they have more debt than they can manage.

Though those in their 30s and early 40s are more affected, seniors 60 and up are also struggling. This year, 31% of Americans ages 60-plus say they have more debt than they can manage — that’s up 4% year-over-year.

Common Types of Debt in Retirement

So what kind of debt are seniors juggling in retirement? Credit cards are the biggest source of trouble, but some seniors are still paying off mortgages, personal loans and even student loans.

Credit Card Debt

Carrying a credit card balance month-to-month can be costly, especially if it’s a high-interest card. (Right now, the average credit card interest rate is more than 20%.)

Unfortunately, 38% of Americans age 60 and above currently carry a credit card balance from month-to-month.

“Credit card debt has been increasing in recent years, particularly among families ages 75+,” Lori Trawinski, Director of Finance and Employment, AARP Public Policy Institute, told The Penny Hoarder.

This makes sense, as 57% of seniors say housing costs have gone up in the last year, and a whopping 80% say their food and grocery costs have increased. Credit cards are an easy (but costly) way to manage rising expenses.

“Debt can help people pay for necessities when they lack enough funds to pay for them outright,” conceded Trawinski.

But, she cautioned, “Debt can become bad when balances continue to increase, and people lack the funds to repay the debt.”

Mortgage Debt

If you get a 30-year mortgage in your late 20s or early 30s, you may imagine a retirement without a mortgage payment. But if you relocate or refinance during your 40s or 50s, you might still be paying off a mortgage in retirement.

In fact, a third of all Americans ages 60 and up still have a mortgage balance they’re paying off. The median monthly mortgage payment in the U.S. is $1,672, based on 2021 Census data. That’s a large chunk of change for retirees living on a fixed income.

“Mortgage debt accounts for the largest portion of consumer debt carried by families age 50 and older,” Trawinski said.

Six percent of senior homeowners also carry debt from a home equity loan.

Student Loan Debt

Those college days are usually but a distant memory once you hit retirement, but some seniors still get a monthly reminder of their secondary education: Around 3% are still paying off student loans, either private or federal.

Other Debt

Car loan debt is common for retirees (24% of 60-plus-year-olds have an auto loan), and 10% also have medical debt to pay off — at a time when their medical costs tend to go up.

Some seniors — 10% — even have personal loans from a bank to pay off; 4% are juggling loans from family or friends.

Just 31% of people 60 and up say they’re completely debt free.

8 Tips for Paying Off Debt in Retirement

Managing debt in retirement can be stressful. After all, these are meant to be your golden years — a time to live lavishly, travel often, explore new hobbies and let all your hard work pay off.

But with the threat of high-interest debt, it can be challenging to treat yourself to much of anything in retirement; instead, your day-to-day might be consumed by stress and fear.

Looking for help? Here are eight ways to manage and pay off your debt in retirement:

1. Stop Taking On New Debt

The first step to reducing debt in retirement is to stop acquiring new debt. Easier said than done, of course, especially when inflation is eating into your budget.

However, you’ll never get out of crippling credit card debt if you keep swiping your card for every purchase. Instead, sit down with your budget and calculate how much retirement income you receive each month.

Then, figure out what bills you have to pay each month, and cover those with your retirement income. Don’t use your credit card or take out a personal loan to fund anything unless it’s an absolute necessity and you have no other way of paying for it.

2. Cut Down Your Expenses

During the budget exercise above, review your monthly spending habits to see where you can cut back. Pay down your credit card debt with these newfound savings.

Here are some easy things you can do to cut down expenses:

• Adjust your auto insurance: Car insurance prices for seniors tend to go up once they hit 70. Shop around for a new policy, see if your AARP or similar membership can get you any discounts, take a defensive driving course or just raise your deductibles to lower your rates.

• Rethink gifts: Grandparents love to shower their grandchildren with gifts — and you should feel like you can do that in retirement. However, everything in moderation. Examine how much you’re spending on gifts for family, especially grandkids. If you scale back, will you be able to leave them a bigger nest egg when you die?

• Change your entertainment spending: Retirement should be about enjoying the finer things in life, but not at the detriment of your finances. Cut back on how often you dine out (a meal at home is always cheaper!), and book more budget-friendly vacations in retirement.

• Make easy home upgrades: Utility bills can quickly drain your budget. See if there are easy home improvements you can make to improve the efficiency of your home — install a low-flow toilet, replace incandescents with LEDs and use caulk to prevent air leaks. Simple adjustments like this can reduce your monthly utility spending significantly.

3. Downsize Your Home

If your house is paid off — or close to it — consider selling it while housing prices are still high. If it’s your primary residence and you’ve lived there a long time, you won’t be subject to capital gains tax, and you can reinvest that money in a smaller home that’s easier to manage.

If the price is low enough, you should have money left over to pay down other debts or pad your monthly budget. And given that the house is smaller, it’s likely you’ll have lower property taxes and maintenance costs going forward.

When downsizing to a smaller home, you could sell some of your belongings you no longer need. Now is a great time to get rid of excess furniture, for instance, but check with kids and grandkids first to see if they’d like any of it.

Speaking of your kids, you may be able to move in with them when you sell your home, rather than purchase a new, smaller home. There’s a lot to consider when moving in with a child in your older age, so talk it through with family to make sure it’s the right move for you.

4. Get a Reverse Mortgage

If you need more income every month to avoid using high-interest credit cards, you could apply for a reverse mortgage. These let you tap into the equity you’ve already built in your home, and the money is tax free.

Reverse mortgages have a lot of downsides to consider: You’ll pay high costs up front, you likely won’t be able to leave the house to your heirs (or even your surviving spouse, depending on how the reverse mortgage is done) and you even risk foreclosure.

“The decision to tap into home equity is a serious matter,” Trawinski said. “Consumers should consult with an elder attorney or trusted financial advisor — a person who will not benefit from the transaction — before obtaining a reverse mortgage loan.”

5. Get a Part-Time Job

If you’ve cut expenses as much as you can but you’re still finding it hard not to take on new debt — or pay down existing debt — you may need revenue on top of your Social Security benefits and retirement income. To bridge the gap, you can take on a part-time job, become a contractor, rent out your home on Airbnb or turn your hobby into income.

For instance, some retirees may re-enter their industry as a consultant on a contract basis. Others may turn their arts and crafts into sellable pieces online. If you’ve got a passion — whether it’s gardening, writing, teaching or even working on cars — think about how you can monetize it.

If you’re willing to learn something new, you might be able to join the gig economy. You could drive for Uber or Lyft, become a pet sitter on Rover or try out mystery shopping. There are plenty of ways for retirees to work from home; it’s easy money and keeps you active in retirement.

6. Consolidate Your Debt

Consolidating your debt with a debt consolidation loan or a balance transfer credit card could be helpful if you’re juggling multiple high-interest debts but can qualify for a lower rate now.

In fact, if you can get a balance transfer credit card and have a strategy to pay off the debt during the 0% intro APR period, you might be able to get out of debt without paying another cent in interest.

But not everyone may be able to go this route.

“A balance transfer typically requires a credit score of 670 or higher,” Trawinski advised.

It’s also a dangerous strategy: You’ve got to take on more debt to get out of debt. If you haven’t been a responsible borrower in the past, taking out yet another loan may be too risky.

As alternatives to balance transfers, Trawinski also recommends seniors consider the debt avalanche method, the debt snowball method or the pain point method (prioritizing “paying off the card that causes you the most pain for whatever reason”).

7. Tap Into Your Retirement Fund

Your retirement fund is supposed to carry you through your remaining years, helping you cover everyday expenses and rising medical costs. But if you’re drowning in debt early in retirement, it may be worth accessing more of your retirement savings now to pay down the debt.

If you use a good chunk of your retirement savings to do this, however, you’ll need to make sure you still have enough left over to get you through retirement. If not, you’ll need to find more ways to cut costs (like moving in with family) or adding revenue streams (like getting a part-time job).

Note: We don’t recommend this strategy if you’re younger, as you’ll pay penalties to access your retirement savings, and you’re reducing the growth potential of your investments.

8. Access the Cash Value of Your Life Insurance

If you purchased a permanent life insurance policy, it’s likely been building cash value over the years every time you’ve paid a premium. The policy beneficiary will get that cash value when you pass — but you can also borrow against the cash value you’ve built or make (taxable) cash withdrawals from the cash value.

Alternatively, you can surrender your life insurance policy. Your beneficiary won’t receive the death benefit, but you’ll immediately get the cash value you’ve accrued over the years. (Some life insurance policies may charge a surrender fee.)

Make sure you speak with an agent to understand your options — borrowing against cash value and surrendering the policy — and what financial impacts it will have.

What Happens to Debt When You Die?

If you carry debt deep into your retirement, it’s possible you could pass away before you’ve paid it all off. So what then?

“Debt does not go away when someone dies,” Trawinski said. “The estate of the deceased person is responsible for paying the debt … If you need help determining whether you are legally responsible for a deceased person’s debt, contact an attorney or legal aid organization.”

To complicate matters, different types of debt are treated differently. Here’s what happens to each type of debt when you die.

Contributor Timothy Moore covers banks, loans, taxes, retirement and more for The Penny Hoarder. His work has appeared in publications such as Forbes, USA Today, Retirement Living and LendEDU.