Statistically, one in three South Africans retirees have no retirement plan and will still be in debt upon retirement, forced to use a portion of their pension to pay back previous debts.

While reducing debt as much as possible before pension age is advisable and preferable, you can still work towards becoming debt-free as a pensioner with debt.

Paying off debt on pension income: Is it possible?

Depending on individual financial circumstances, many South Africans won’t even afford to retire with sufficient funds, even after spending the bulk of their retirement savings on fully repaying past debts. Statistics from National Treasury show that only 6% of the country’s population are on track to retire comfortably.

Cashing in retirement funds early to pay off debt has some risky and far-reaching consequences on future income due to costly tax implications and penalties on early withdrawals. Also, this action does not guarantee that there won’t be any future debts to settle later on upon retirement, either.

The alternative, equally risky, is to go on pension knowing that there is still be some debt to be paid. For example, you enter retirement with an ongoing property bond, a vehicle balloon payment, multiple balances on credit cards or perhaps a personal loan or legal settlement that needs immediate attention.

As a pensioner still with debt, you forfeit part of your monthly pension income to these necessary repayments until you get rid of the burden once and for all. The aim is to reduce all debt as quickly as possible while enjoying enough money for daily expenses in the pension age. While not an ideal situation upon retirement, getting rid of debt is still doable.

Reducing debt at pension age: Can you afford to do it?

The real challenge when retiring with debt starts with a simple question: does your new calculated pension income exceed your monthly debt instalments considerably? Or do you find yourself short of paying off the debt with only a pension income and no savings or other assets?

If you answer yes to the latter question, below are some possible reasons for your debt struggles and what to do about it to eliminate outstanding debt.

  • Your pension income is significantly lower than your salary earned during employment, yet the debt repayments are the same as before retirement.

You need to adjust your budget and debt repayment plan to fit your new income and resume payments without fault.

A debt counsellor will review your current budget and discuss lower instalments or a lower interest rate with the creditors. There is also the possibility of stopping the interest altogether, so you do not have to worry about accumulating interest.

  • You still have multiple debts to pay, within reasonable limits, but chances are you cannot keep up with all the instalments at pension age.

Check with creditors first if there is any insurance to cover the credit you’ve taken, as it may be helpful to cover part of the debt, decreasing the loan amounts.

Finally, prioritize high-interest repayments by reducing at least the unsecured debt repayments such as credit card debt.

You may benefit from a debt consolidation plan, where you only have to repay one debt on renegotiated terms with banks and creditors, which could mean a better interest rate and a reduced instalment.

Pensioner debt help: Do you need debt counselling?

Ideally, debt should be fully paid before retirement. But it may not always be possible in the current economic climate, worsened by the pandemic’s impact – job revenue and capital loss, low investment returns, unfavorable markets.

However, a pensioner still with debt is not a lost cause.  Debt help for pensioners is readily available through debt review and debt counselling practices. ezDebt counsellors advise on the best debt repayment management plan to fit your retirement needs.

Our professional ezDebt advisers can help you stay on track with debt repayments through quick and affordable debt counselling. All our debt counsellors are registered with the National Credit Regulator (NCR). Get in touch at www.ezdebt.co.za.

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