Tackling credit card debts after retirement isn’t the pleasant thing to do. But, if you have retired with credit card debts, you should get rid of them as soon as possible. Otherwise, they’ll ruin your post-retirement financial life with time.
Hope you don’t want a financial heart attack after retirement. If you want to live a peaceful retired life, check out how to consolidate your credit card debts without taking much stress.
Consolidate credit card debts after retirement: How to do
Peep into your financial life and you’ll get a handful of options to consolidate your credit card dues. To make your job easier, I’ve listed few types of debt consolidation loan, which’ll help you to get rid of your debts.
But, remember few things before taking out the loan:
- Check out the loan tenure and the interest rate
- Since you’re retired, don’t take out a loan with high interest rate and a long tenure
- Find out if you can afford to pay off the loan
Now, take a look below to know more about the types of credit card debt consolidation loans:
1 Tap your home’s equity in 3 ways
If you own a home and are 62 years of age, you can use your home equity (which you’ve to convert into cash) to pay for health care, living, home remodeling, other expenses and can even clear your dues.
Check out how your home equity saves you from credit card debt:
i. Reverse Mortgage
A reverse mortgage is just the opposite of a traditional mortgage. It converts your home equity into cash. Here, you don’t pay the lender, the lender pays you.
When you take out a reverse mortgage, you don’t have to repay the loan amount until you die, move out or sell the home.
You can also opt for a Home Equity Conversion Mortgage (HECM), which is a type of federal reverse mortgage. You can obtain such a loan if you’re the homeowner, 62 years of age or older, and not delinquent on any federal debt. It is advisable that you check whether or not you qualify other eligibility criteria to take out such a home loan. HECM has a line of credit option from where you can borrow money without any monthly payment obligation.
Plus, the money that you receive from a reverse mortgage is tax free and can be used for any purpose. You can get the amount in a lump sum or in installments.
ii. Home Equity Loan
A home equity loan also lets you convert your home’s equity into cash. Its operations are similar to a primary mortgage (that’s why it’s also called the second mortgage).
You can consolidate your credit card debts with the lump sum payment that you receive from the home equity loan. Unlike a reverse mortgage, a home equity loan requires you to make regular payments to pay off the loan.
iii. Home Equity Line of Credit (HELOC)
A home equity line of credit works just like a credit card. You can borrow money up to a certain limit. With a HELOC, you have to pay interest on the amount that you actually withdraw. However, the interest on a HELOC is tax deductible. When you use the money for another purpose, you can deduct only up to $100,000.
2 Use your 401(k) fund
Though you can get a handsome amount of money to consolidate your credit card debts, yet try not to tap your entire 401(k) money unless it’s a dire emergency. Remember, depleting your entire retirement fund may make the rest of your gray hair days miserable.
3 Take out a personal loan
Taking out a personal loan after retirement is tough (because most retirees don’t have a regular income), but not impossible. However, you can increase your chances of obtaining the loan if you can make your lender understand the seriousness of your situation, if you have a good financial history, if you can afford regular payments, and so on.
So, what are you waiting for? Go get your loan and clear your credit card dues as soon as possible before they ruin your retirement.
2 Other ways to fetch money to pay back your credit card debts
1 Find out a source of income after retirement
Your first priority should be to become debt free. Even if you don’t have a regular source of income after retirement, consider taking up a part-time job until you repay the credit card debt. Some of the best part-time jobs for the retirees are teaching, freelance writing, accounting, event planning, and so on.
2 Utilize your tax refund
You may think that just because you’re retired you don’t have to pay taxes anymore. But, you may have to pay taxes on your social security benefits (your social security benefits may not be taxable if it’s your only source of income in retirement) and other income sources like the ones from 401(k) during your retired days. Since you’re filing taxes at retirement, you’ll get a tax refund. Whenever you get a tax refund, use it to pay off your credit card dues.
What do you think about consolidation loans? Share your thoughts with us.