Here’s How You Can Get Out Of A Debt Trap In Your Retirement Years

People usually dream of a retired life that is full of comfort and free from all types of liabilities.

However, due to adverse circumstances, sometimes people have to take loans to overcome a financial emergency. Retirees are often at a greater risk of falling into a debt trap because their earning capacity is limited and they cannot often repay unplanned loan equated monthly instalments (EMIs).

So, here are some important steps you may take to escape a debt trap should you get into it after retirement.

Reduce Your Expenses

It’s important to stop financial leakages, and the best way to do it is by reducing your expenses. You can list out all your expenses and mark them as most important, important, and least important. Now, you can remove the least important expenses and focus on the important and most important ones. It will help you save money without disturbing your crucial retirement goals. 

Prioritise Your Loan Repayments

Try to keep your other financial obligations aside, especially ones which are least important, and try to prioritise your loan EMI repayments. Avoiding the loan repayment can spoil your credit score, and due to compounding of interest, it can get more and more difficult for you to repay the loan.

So, repaying your loan EMIs on time can help you stay financially healthy. Also, try to choose the loans that you should repay first. For instance, the loans that carry a higher rate of interest and those which are closer to full repayment should be paid on a priority basis. It will help you reduce the number of loans and focus on the payment of fewer loans.

Restructure Your Budget

How much money you should spend should be redefined to compensate for the debt obligation. So, it is important to restructure your budget. Prioritise your budget based on the importance of your spending needs. Loan repayment should be at the top of your priority list, along with other financial necessities such as rent, electricity bills, school fees, etc.

Conclusion

It’s crucial that you quickly come out of any debt trap, but what if you cannot despite making all the efforts mentioned above? You cannot live under debt when you are retired.

So, you may have to choose other stringent financial options, such as selling your home and shifting to a rented apartment to repay the loan amount, or downsize your home and repay the loan from the money thus saved. You may also take up a part-time job to improve your financial situation.

The author is an independent financial journalist