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Your Complete Retirement Income Plan: A Step-by-Step Guide for Seniors

August 23, 2025 · Personal Finance

Taming Debt and Managing Big Expenses

Carrying debt into retirement can be a heavy burden on a fixed income. The interest you pay on loans is money that you can’t use for your own needs and goals. Developing a plan to manage and eliminate debt is a crucial part of securing your financial future.

Prioritizing High-Interest Debt

Not all debt is created equal. A low-rate mortgage may be manageable, but high-interest credit card debt can quickly spiral out of control. The key is the Annual Percentage Rate (APR), which is the total annual cost of borrowing money, including interest and fees. Credit card APRs can often be 20% or higher.

If you have credit card debt, make it your top priority. Pay as much as you can above the minimum payment each month. Focus on paying off the card with the highest APR first, while making minimum payments on the others. Once that one is paid off, roll that entire payment amount onto the card with the next-highest rate. This is called the “avalanche” method and can save you a significant amount in interest charges.

The Home Equity Question

For many retirees, their home is their largest asset. Tapping into home equity can be an option for extra cash, but it should be approached with extreme caution. A Home Equity Line of Credit (HELOC) works like a credit card with a variable interest rate, using your home as collateral. A reverse mortgage allows homeowners 62 and older to convert part of their home equity into cash without having to make monthly mortgage payments. However, they can be complex and have high upfront costs.

Before considering any product that uses your home as collateral, it’s vital to understand all the terms and risks. The Consumer Financial Protection Bureau (CFPB) offers clear, unbiased guides on these topics to help consumers make informed decisions.

Your action step is to create a simple debt inventory. List all your debts, their balances, and their interest rates. If high-interest debt is a problem, make a clear plan to pay it down, which may mean temporarily reducing variable spending to free up more cash for debt payments.

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