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The latest figures show that the number of people retiring in debt continues to climb, as one in five people expecting to retire this year owe an average of £33,900. Prudential's 'Class of 2018' research furthermore reveals that these debts are nearly 40% higher than those of last year's retirees.
This is the second year in a row that the average debt burden has risen, with it now being 80% higher than the low of £18,800 recorded in 2016. However, there is some good news, as the number of people in debt has fallen slightly, from 25% last year to the current total of 19%.
The main sources of debt are mortgages and credit cards, with 38% of those in debt still paying off their mortgage, while 53% owe money on plastic. Around 18% have bank loans, with the same proportion having overdrafts to worry about. Men are outperforming women in terms of debt, owing substantially more at £43,600 compared with £19,200, while 22% of men expect to retire in the red compared with 16% of women.
It's expected that repaying all this debt will take three and a half years on average, at an average cost of £285 per month, up nearly a quarter from the £230 a month debt repayments faced by last year's crop of retirees. What's worse, 14% expect to take seven years or more to pay off their debts, while 6% fear they will never manage to do so.
With debt repayments taking a substantial slice of the monthly retirement income, budgeting is likely to be much tougher for the 25% who have debts to deal with, "at a time when most people will see their income drop as they stop work", pointed out Vince Smith-Hughes, retirement income expert at Prudential. He went on to say that "many people will benefit from the free information available from Pension Wise, preferably before the time comes to give up work."
While it's always a good idea to speak to a financial adviser, especially a Government-funded one that won't cost you a thing, there are some things you can do on your own to make sure you're not part of the 'Class of 2020' or beyond retirees struggling with debt. For one, you could overpay your mortgage whenever you can – make sure you get a mortgage that allows this in the first place.
If you're staring at credit card debt that won't seem to go away, consider a 0% balance transfer credit card to give you some breathing space while you pay off your debts. Don't forget to cut up and cancel your other credit cards once you've transferred the debt, though, to avoid the temptation of getting into even more debt.
Other debts could be better dealt with through a personal loan, as this allows you to consolidate a lot of different debts, usually with a low interest rate. Of course, none of this may help if you are already retired and struggling to make monthly repayments, while trying to keep a comfortable way of life. Short of moving house, you could consider equity release to use the value in your home to your advantage.
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