Budgeting and everyday money management
Managing Debt After Retirement
How to manage debt on a fixed income: list what you owe and what each debt costs, pay the high-rate balances first, use free nonprofit credit counseling, and spot debt-relief scams.
Retirement does not end debt. It changes the math. Paychecks stop, but loan payments do not, and most income now comes in fixed sums that do not grow much from year to year. This guide shows how to get a clear picture of what you owe, how to pay it down in a smart order, and where to get free help you can trust.
This guide is part of our Aging at Home hub. Its sister guides cover creating a monthly budget on a fixed income, planning for irregular expenses, repairs, and annual bills, and building an emergency fund in retirement. A related guide is adjusting the household budget after losing a spouse.
Key takeaways
- Debt in retirement is common. The Federal Reserve found that 57 percent of retirees had debt in 2022, and the middle balance among them was about $32,050.
- Credit cards are the most common debt. About 32 percent of retirees carried a card balance, with a middle balance of about $2,500.
- List each debt with its balance, its rate, and its least payment. The rate is what makes a debt grow.
- Pay at least the least amount on all debts, then put extra cash on the debt with the highest rate.
- Free help exists. Nonprofit credit counselors give a first session at no cost or low cost. Firms that charge fees up front to settle debts are a red flag.
How common debt is after retirement
The Federal Reserve's Survey of Consumer Finances for 2022 found that 57 percent of people who said they were retired still had debt. The middle, or median, balance was about $32,050. In other words, half of retirees with debt owed less than that, and half owed more. Home loans made up the largest share of the dollars owed. Credit cards were the most common form: about 32 percent of retirees carried a card balance, and the middle card balance was about $2,500.
Those sums matter more on a fixed income. When you worked, a raise or extra hours could help you catch up. In retirement, the main tools are the order in which you pay, the rates you can get cut, and the costs you can trim.
Step one: list what you owe
Write down each debt on one page: who you owe, the balance, the interest rate, and the least payment each month. Pull the facts from your last statements, not from memory. Add up the least payments. That sum is the floor your budget must cover each month before food, medicine, or anything else.
Mark the debts in two groups. Secured debts are tied to a thing, such as a home loan tied to your house or a car loan tied to your car. If you fall behind, you can lose the thing. Unsecured debts, such as credit cards and medical bills, are not tied to a thing you own. Both groups matter, but the secured debts that guard your home and your ride come first when money is tight.
Step two: pay in the right order
Pay at least the least amount on every debt, on time. Late fees and missed marks on your credit record make each month harder than the last.
Then take any extra cash and put it on the debt with the highest interest rate. Card rates are most often the highest by far, so card balances most often come first. When that debt is gone, move its whole payment to the next highest rate. Each debt you clear frees a payment that makes the next one fall faster.
Some people stick with a plan better if they clear the smallest balance first, for the win. That costs a bit more in interest, but a plan you keep beats a plan you quit. Pick the order you will still be on in six months.
Call your card firms and ask for a lower rate. It costs nothing to ask, and a long record of on-time payments is your best case. If a firm says no, ask again in six months.
Step three: get free or low-cost help
Nonprofit credit counseling agencies offer a first session free or at low cost. A counselor reviews your income, your bills, and your debts, and helps you build a plan. Some counselors can set up a debt management plan, where you pay the agency one sum each month and it pays your card firms, often at cut rates the agency has arranged. The Consumer Financial Protection Bureau advises checking that an agency is a true nonprofit and asking about all fees in writing before you sign.
Your local Area Agency on Aging can also point you to trusted local help, and many towns have legal aid offices that advise older adults on debt and on letters from collectors at no charge.
Watch out for debt-relief scams
Be wary of any firm that promises to settle your debts for a share of what you owe, or that says it can wipe out debt fast. Under the Federal Trade Commission's rules, a firm that sells debt relief by phone may not charge you a fee before it has settled, cut, or changed the terms of at least one of your debts. Up-front fees, pressure to stop paying your bills, and promises of exact results are all red flags. Never pay with a gift card or a wire transfer. A real counselor will show you the full plan and all costs in writing first.
Protect your home and your savings
Think hard before you tap home equity or retirement savings to pay card debt. A card debt is unsecured. A home equity loan is tied to your house, so the swap puts your home at risk for a debt that could not touch it before. Money taken out of most retirement accounts can also be taxed, and it stops growing for the years when you need it most. If those moves seem like your only path, talk with a nonprofit counselor or a lawyer first. That talk is cheap or free, and it can save your home.
Who covers what
- Original Medicare: does not pay personal debts. It can lower one big cost, though. If health costs strain your budget, ask about Medicare Savings Programs, which can pay your Part B premium, and Extra Help, which cuts drug costs. Each dollar saved there is a dollar you can send to a debt.
- Medicaid: does not pay personal debts either. For people who qualify, it covers health costs that might else go on a card, which can stop new medical debt from forming.
- Private pay: your debts stay yours to pay, on the plan you build. The good news is that the main tools — the list, the pay order, the calls to card firms, and a free counseling session — cost little or nothing to use.
Sample Situation
Joe, age 70, retired last year with a home loan, a car loan, and two card balances that grew while he helped his son through a job loss. He lists all four debts with their rates and finds the cards charge far more than the loans. He pays the least amount on all four, then sends each spare dollar to the higher-rate card. He also calls that card firm and gets its rate cut after he shows a clean year of on-time payments. In nine months, the first card is paid off, and its old payment now goes to the second card. Joe's plan has an end date he can see, and his home loan and car loan stay current the whole way.
Your next step
Debt is easier to handle when you can see the full cost picture. Our Costs section shows what care and daily life tend to cost, so you can plan the rest of your budget with real figures.
Sources
Next step on Care and Living Guide
Care costs — See what care costs and how families pay for it.