Many people wish they could retire early. But more of us than ever struggle to find the means to do so. And if you have rung up a lot of credit in the past, you may be reluctant to entertain even the idea of retiring. Can you still retire early with debts? You may ask yourself if you would really want to. Surely the idea of retiring is to enjoy a stress-free lifestyle, relaxing and having fun? It seems that having financial commitments and debts to pay could get in the way of that.
But what you do now could help speed up your process of clearing those debts and commitments. One of the biggest loans we will ever take out is a mortgage. Most people want that paid off completely before they give up their jobs. Check with your mortgage provider about the option to pay it off early. If there is a penalty for doing that, consider waiting until your current terms are up. Then simply move your mortgage to a lender more willing to offer flexible terms.
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Sometimes taking a new loan to consolidate your existing commitments can offer you a cheaply monthly repayment. Of course, this can often mean that the overall repayment sum is greater. And not everyone is in a good position to be able to take out a cheap loan at the moment. If you have had difficulties paying bills or loans in the past, chances are your credit score is not high enough. You may not be eligible for preferential rates.
There are a few ways around this. Paying off your debts is one of them but not always practical to do quickly. Another way is to check your credit report and see where the problems are. You can then write letters to the companies that have affected your score to try and repair your credit report. You can find credit repair letter templates that will help you word this as effectively as you can. You can also see if this is the right path for you at this time.
Living frugally now is certainly the best way to enjoy retirement in the future. But it can also be the best way to clear off your debts and financial commitments early. Putting every spare penny into paying things off might feel unpleasant at times. After all, you’re trying to grow your nest egg, not hand it over to the credit card companies. Savings accounts earn far less than the interest you’ll be paying on your loans. Investments may not reap back the interest you have to pay either. Check the figures to make an informed decision.
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It seems you have two choices when it comes to debts. You could pay them all off as quickly as possible. Or maybe reduce them to a bite-size monthly arrangement that is affordable during retirement. Perhaps the most important thing to do right now is to avoid adding any more credit to your commitments. This could be easier said than done, but there are some simple ways to manage this.
Start with a budget. Use a template, or create your own spreadsheet. Detail everything you might pay money for each month. Include the cups of coffee at your favorite cafe. And don’t forget to add the utility bills and mortgage payments. Once you’ve listed everything, you can start removing the things you don’t really need. Perhaps you don’t really need to spend three hundred a month on fashion when two hundred can keep you going for now. And there is a lot to be said for instant coffee at home!
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It’s important to also allow yourself a little ‘going out’ money each month. We all need to treat ourselves from time to time and have a little fun. If you cut everything you enjoy out of your life, you could be at risk of a big blowout later! Little and often could be the best way to go to feel like life is still a pleasure. Living frugally should instead mean switching off the lights when you don’t need them, or walking rather than driving.
In Conclusion
It’s not easy to retire without debts sometimes. But retirement may be more pleasurable knowing you don’t have to continue paying back a loan for years to come. While it is possible to manage the cost of a loan repayment, you need to weigh up the pros and cons of doing so. Of course, paying all your debts back may cost you the nest egg you were hoping to live on during retirement. Live frugally now for a debt-free future.
What do you think? Can you still retire early with debts?
Nice post, good to hear another viewpoint.I think it depends on the debt, and if you have the cash flow eg we have an investment property mortgage but already the rent covers all expenses including the mortgage and we are confident we can get tenants easily because of the nature of the property so I would to OK with this debt. But not if the debt is credit card debt symptomatic of not being able to live within my means.
Thanks for the comment PE. You have made a very good point. Some debt as you say that generates income or increases net-worth should be looked at differently. Perhaps a great subject for another post.
Tommy
It really depends on the debt you have. If it is credit card, then you probably shouldn’t because there is an underlying issue of why you have it while you are saving aggressively for early retirement. If it is a mortgage, that isn’t as pad because you can build your payment into your spending plan and build the funds to pay for it. Personally, we will speed up our mortgage payments a bit but will probably hit financial independence with a balance on the mortgage still and I don’t have a problem with that. We are just planning to build that into our plan.
Thanks for the comment Thias. I agree with you. I retired the first time with a mortgage and its low payment was part of our budget. When I started my encore career I simply decided to divert all that income to the mortgage and paid it off. Mortgage Pay off occurred before I started to hear that little voice in my head and I decided to retire early again. There are things we can do to reduce debt before retiring as in refinancing to a lower interest rate/payment but the better plan is to at least have all non-mortgage debt paid off and having as low a mortgage payment as possible if not also cleared (paid off) from the budget.
Tommy