How To Handle Credit Card Debt When You’re Approaching Retirement

If you are fast approaching your golden years and still have thousands in credit card balances, you might think you are bound for a debt-ridden retirement. But it doesn’t have to be that way.

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Instead of feeling like you are destined for a retirement saddled by debt, work on putting a plan together. With the right approach, it is possible to effectively reduce your debt before you ride off into the sunset. Here’s how to get started.

Start With Your Highest Interest Rates

First and foremost, you should start attacking your debt by prioritizing balances with the highest APRs. Put as much as you can into that credit card. Once it is paid off, move to the next one with the next-highest rate, and so on.

This strategy is sometimes called the debt avalanche method. While some people might be partial to the debt snowball — starting with the smallest debt amount — the avalanche will mean you pay less interest. Since credit cards have relatively high interest rates, that can make a big difference over time.

Negotiate a Lower Rate

Given that credit cards’ high APRs are the real enemy, it might make sense to negotiate a lower rate for them. And yes, you can actually negotiate.

“If a high-interest rate on your credit card makes repayment hard, reach out to your card issuer to see if there are options available to lower the rate, especially if your financial situation has improved since you first opened the card,” says Elly Szymanski, assistant vice president of credit card products at Navy Federal Credit Union.

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Open a Balance Transfer Card

A balance transfer credit card is one way to grapple with high APRs on your credit cards. “A balance transfer consolidates the balances from high-interest cards onto a single, lower-interest credit card,” Szymanski says. “Because all of your balances are now charged interest at one new low rate, repayment can be more manageable and may even save you money in the long run.”

Of course, the key to success in using a balance transfer card is to avoid racking up a high balance on it by making more purchases.

“If you decide a balance transfer is the right decision for you, try to avoid making purchases with your new card until your debt is paid off,” Syzmanski says. “Otherwise, all new purchases will start instantly accruing interest — counteracting your goal of being debt free.”

Tap Into Your Savings

Another way to handle credit card debt is to tap into your savings. This option is lower on the list because it’s generally best to keep your savings intact if possible. However, it might be worth considering in some cases.

For instance, it might be one option if you have more cash than you need for 6-8 months of expenses. Or perhaps you have money in a brokerage account — chances are, stocks won’t return as much as the APR on your credit card.

“Some may balk at using their savings to pay off debt when they are focusing on investing as much as they can in their retirement accounts,” says Andrew Latham, managing editor at Supermoney.com. “However, the average credit card interest rate is around 19% APR. Paying off your credit card debt is like getting a guaranteed return of 19% — or whatever your credit card rate is — on your investment.”

Pause or Reduce Retirement Savings

Like the above, you can consider pausing or temporarily reducing your retirement savings. Again, since your return on investments will not likely exceed your credit card APR, you can do this temporarily until your credit cards are repaid.

For example, if you have a 401(k), you can contribute only to your employer match instead of trying to contribute the maximum. Or your can pause or reduce IRA contributions for a period. Once your credit card balances are at zero, you can return to your previous savings strategy.

Delay Retirement if Necessary

Working longer is another option that may not sound very appealing, but it could be better than the alternative.

“Many people who planned to retire at the age of 65 are now reevaluating those plans and choosing to stay in the workforce for another year to three years in order to pay off their credit card debt,” says Ari Parker, co-founder of Chapter, a technology-driven Medicare advisory organization. Parker continued, adding that it’s best to have your finances in order before leaving your job.

There may be another benefit of delaying retirement: increased Social Security benefits. This is because Social Security benefits permanently increase by 8% per year for each year you delay retirement. The maximum increase is 32%. That extra cash can go a long way in retirement.

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This article originally appeared on GOBankingRates.com: How To Handle Credit Card Debt When You’re Approaching Retirement

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