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The Independent
13 hours ago
- Business
- The Independent
I want to retire but I'm in loads of debt – what do I do?
As retirement approaches, many people look forward to a slower pace of life and the freedom that comes with no longer working full-time. But for those carrying debt into their later years, the prospect of retiring can bring just as much anxiety as it does anticipation. With income often dropping and expenses sometimes shifting in unpredictable ways, it's important to take stock of your financial situation beforehand. Dennis Hussey, team manager at National Debtline who has also been a money advisor for 20 years, explains that when retiring it is 'often going to mean that income streams narrow'. 'For most people, it means that they are giving up a regular waged income and have a pension income that's possibly going to be more modest,' he explains. What are the first steps someone should take if they want to retire but are in debt? 'Seeking debt advice is a really good start but also creating a budget,' says director of external affairs at Money Wellness, Sebrina McCullough. 'Work out what money you'll have coming in post-retirement and then think about how spending might change once you're retired. 'Money Wellness has a budgeting tool on its website which can help work out what your income and outgoings will be post-retirement, which can give people a greater sense of whether or not they will struggle to maintain debt payments. Hussey adds: ' One of the first steps we'd cover with someone in this position going through a very thorough assessment of their current income and household expenditure, so we can help them assess how stretched they are. We would also discuss what their projected income in the event of retirement would be, so we can measure the relative impact. 'From a money advice perspective, we would draw a distinction between them meeting what we call our priorities – paying for things that keep a roof over our heads, utilities, food, etc – and then non-priority debts, which may be commitments on unsecured loans or credit card repayments. These are commitments where if you don't meet them as required, you're going to incur charges and have marks put on your credit report, but they won't directly put you or anything you own at risk.' Is it advisable to retire while still in debt, or should you pay it off first? 'We always advocate that someone puts their health and wellbeing at the front and centre of their considerations,' Hussey says. 'What we will do is just point out any knock-on material impact that the decision will have. If we think, for example, that someone's retiring leaves them in a position where they can meet their essential obligations but they may not be able to maintain a pristine payment history or credit report, then we will point that out to them and they'll be in a position to make an informed choice. 'Without over-generalising, we find that the importance of preserving a credit file and maintaining a high level of credit is often going to be less important for a person retiring, in comparison to someone in their early working life who has aspirations to get on the property ladder – the dynamics are different.' McCullough adds: 'It's less about whether or not you're in debt or not in debt, and more about whether or not your budget is manageable. ' People have to be proactive prior to retirement to understand what their income would look like in retirement. Therefore it's always a good idea to make sure that you've done some sort of budget in the years prior.' What strategies can help someone reduce debt in the years leading up to retirement? 'If people can afford to make overpayments towards debt this can help,' McCullough says. 'For example, if you've got a credit card that you've been making minimum payments on and you can afford to pay a little bit more off that each month, that will help your debt balance reduce much quicker. 'If you're struggling in the years pre-retirement and perhaps don't have an additional income to try and pay your debts quicker, again seeking debt advice can be really beneficial for people in severe financial difficulty. There are also options that we support customers with, for example, debt-relief orders which are a way for debt forgiveness to be provided to those who have got no propensity to be able to repay debts short or long-term.' Hussey says: 'We will also make people aware, where relevant, of any pension freedoms that they may be able to benefit from. We're obviously now talking about the scope to release funds from a defined contribution pension after the age of 55. The rules now allow someone in that position to release up to 25% of such a fund tax-free after this age and, in some cases, that can be something for someone in this position to consider – whether it's to raise a lump sum to pay off debts, or simply to supplement their existing income. 'At the same time, we will always point out doing that doesn't come without its downsides, as your retirement income will be lower when that time comes later down the line.'
Yahoo
27-01-2025
- Business
- Yahoo
'I'm slowly paying off £7,000' – Tips from those tackling debt
Helpline calls from people worried about debt have surged in January as energy bills rise and credit payments for Christmas spending are due. National Debtline received 57% more calls in the first two weeks of January compared with the same period last year. The first Monday of the new year was its "busiest ever", according to the Money Advice Trust, which runs the line. Concerned callers were often behind with energy and water bills and many owed money to family and friends, the charity said. But, as many people vow to tackle unmanageable debts this year, some have taken to social media to document their journeys to becoming debt-free. The BBC has spoken to people who once owed thousands of pounds to find out how they cleared, or are working to escape, their debts. They have joined a host of charities, such as Citizens Advice - which has also seen a rise in calls - in urging people to address their money worries. Rachel Hargreaves said seeing other parents posting presents for their children on Instagram used to trigger her overspending - even as her mortgage and household bills went up. Now, she is using her social media account to record her progress in clearing more than £7,000 and to get support in the process. "There is a community. It is nice to speak to people in a similar situation," she said. It had also helped her to take more responsibility for her finances, she said. That included being clear about how much money was coming in and going out, and cutting back on impulse purchases. Using cash, rather than cards, to make it clear how much was being spent helped maintain control, she said. Emma Quinn, 32, has bipolar disorder and has experienced periods of mania accompanied by impulsive and reckless behaviour including spending sprees. "You had the euphoria of buying something, followed by the elongated and severe periods of depression and self-loathing," she said. She once had an income and a manageable amount of credit card debt, but following her diagnosis this had spiralled to - at their worst - debts of £20,000. "I felt suffocated by it, constantly trying to shuffle it around, but not reducing the debt," she said. January 'the hardest month' when it comes to debt More escape debt for free as bills keep mounting Eventually she opened up to her dad, describing telling him about her debt as "the worst day of my life". Together they cut up cards, put caps or freezes on accounts and made a budget and payback plan. She is now debt-free, has a mortgage and is saving for retirement. Emma said she removed cards from online accounts and deleted her details saved on retailers' websites to "slow everything down" and avoid impulse purchases. She also recommended setting up a trusted contact who is alerted for any large or unusual transactions. When their family construction business was hit by the rising cost of materials, Sam and Paul Helsby found themselves in serious difficulty. When Paul suffered a stroke at the age of 44 they lost the business and their linked personal debts spiralled. The couple quickly found themselves £60,000 in debt, with bailiffs at the door and demands streaming through the letterbox. "We were scared to open the curtains. We shut the world out," said Paul. They have no photos of the Christmas before last because it was one they did not want to remember. They volunteered at a food bank and had got to know staff from the debt charity, Christians Against Poverty, which runs a money coaching course. One evening they sent a text and opened up to one of them. "As a joiner, I've always been a person who can fix everything," said Paul. "Saying I can't fix it, you have to let go and ask for help." Soon afterwards, they were provided with food and energy vouchers, and an adviser helped them to make sense of their financial "mess". Paul was made bankrupt, and Sam signed up to a debt relief order. Find out more on ways to deal with debt Listen to callers to the BBC on their experiences of debt Now, they lock money into virtual pots in their bank account that only open on certain days - such as a budget for food every week, and others for birthdays, with extra going into a savings pot. This Christmas emphasised time spent with the family, rather than money spent on presents, so January has been stress-free. When Rob Smale's marriage ended he said his mental health deteriorated and his financial position nosedived. At one point he owed £35,000 due to spending on multiple credit cards and gambling. The 58-year-old is still looking for a job, having made more than 300 applications, but his financial situation is now much more healthy. He puts that down to "an odd combination of dealing with big and little things" - ranging from knowing when the discount yellow stickers are added to items in the supermarket, to seeking help from a debt charity. He said the breathing space scheme, which gives people temporary respite from creditors, was crucial for anyone to get some sense of control over their finances. "Ask for help and be aware," he said. "Sometimes it's just about creating better habits. It's better to stay out of trouble, but not to panic when you are." First, work out how much you owe, who to, and how much you need to pay each month, says the charity Citizens Advice. Identify which bills and debts are most urgent and pay them first, says debt advice charity StepChange. People in England and Wales who are getting debt advice can apply for a break, lasting up to 60 days, as part of the "breathing space" scheme. If you think there is no way to pay off your outstanding debts, you may have to consider some form of personal insolvency such as a debt relief order, an Individual Voluntary Arrangement or bankruptcy. Information and support is free of charge - here are some organisations who may be able to help. Sign in to access your portfolio
