It’s never too early to start thinking about and planning for retirement. Whether you’re in your mid-20s and just starting your career or within five years of retirement, you’ll want to think about how to make your golden years more comfortable. One way to achieve this is to pay off your debts before you quit your day job.
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We asked financial experts from around the country to tell us which five debts people should consider paying off before they retire. Here are their recommendations.
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Almost all financial experts agree that people should pay off any credit card debt before retirement.
Kimberly Malesky, CFP, CDFAwith Harmony Investment Management, LLC, explains, “Carrying credit card debt into retirement is ill-advised. Interest rates are high and make it difficult to get out of the bottom once you have one. certain retirement income. Taking that pressure off your retirement shoulders may be worth the wait. Calculate your monthly payments and how long it will take you to pay off your credit cards. Then go from there.”
Khwan Hathai, a CFP and certified financial therapist at Epiphany Financial Therapy, says, “High-interest credit card debt comes first in debt payments. Credit cards often carry high interest rates interest, which leads to an increase in debt if not met. Eliminating this debt is important because it not only reduces the amount of interest paid over time but also eases the mental burden of having such a high expense debts. The psychological relief of being free from credit card debt cannot be overstated, especially as one moves toward retirement.”
Learn: 7 Bills You Shouldn’t Pay When You Retire
“Car loan payments can be higher than you want in retirement,” says Malesky. “The same steps above apply here. This is the time to weigh your priorities. Do you want a $500 car loan payment in retirement, or will that wipe out your entertainment budget for the month? ?Understand your priorities so you can make an informed decision.”
Hathai added, “Getting rid of car loans before retirement reduces the monthly flow and is consistent with the likely reduced need for transportation after retirement. Owning a car for free and clearly provides a sense of financial freedom and the option to liquidate an asset if needed in the future.
“There is a lot of debate on this topic,” Malesky said. “Most advisors and experts will advise (you) to pay off your home loan before you retire. This is ideal, of course. But it is also not practical for some people. In this case, the applying the same steps above will help you better understand if you can afford the mortgage payments and other living expenses comfortably in retirement.
“I’ll say this: Paying off your home loan is one of the most satisfying things you’ll ever experience.”
Hathai explained, “While traditionally considered a good loan because of the potential tax benefits and its link to a valuable asset, debt-free retirement has many advantages. This dramatically lowers monthly expenses and provides a sense of security, important when moving to a fixed income during retirement. The psychological impact of owning your home is truly profound, providing peace of mind and a sense of accomplishment.
“Personal loans and lines of credit, which often come with higher interest rates and are not tied to asset appreciation, also need to be addressed,” Hathai said. “Reducing these debts will ease the financial strain of retirement, allowing for a clearer understanding of available resources.”
Medical or Health Debts
“Finally,” said Hathai, “resolving medical or health debts is important. With health care costs likely to increase as one ages, entering retirement without these debts can help better manage future expenses. The strategy of paying off these debts before retirement is not only a financial tactic but also a psychological tactic.”
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This article originally appeared on GOBankingRates.com: 5 Debt Payoffs Before Retirement