I am 63 years old, recently divorced, and I have $ 130,000 in debt. How will I ever retire?

I am 63 years old and recently divorced. I make $ 68,000 a year and I always planned to retire when I reached full retirement age in March 2025. Because of the divorce, I now have $ 100,000 in unsecured consumer debt and $ 30,000 in student loans and about $ 170,000 on my 401 (k).

I need every penny to get through and pay the debt service. My payment history is rated “exceptional” (in Experian language) on all accounts, but due to an overstretch, my FICO is only around 650. If I retired today, I would be $ 1,200 a month in Social Security, or $ 1,400 pull month per year if my ex-husband’s account is drawn (we were married for 23 years). If I wait for my FRA, those numbers go up to $ 1,500 and $ 1,800, respectively.

Do you have any advice for me

See: Confused about social security – including spouse benefits, eligibility strategies, and how death and divorce affect your monthly income?

Dear Reader,

I am sorry to hear that you are in this stressful situation. Divorce can affect a person’s retirement savings, let alone their finances in general.

According to financial advisors, debt management should be a priority right now. “Your first step would be trying to get your debt under control,” said Michael Resnick, certified financial planner and senior wealth management advisor at GCG Financial. “She might want to try refinancing her debt or, if it is credit card debt, she could try to find a card that will charge her balance at a lower interest rate.”

There are a few ways to get a grip on your debt. One strategy is to pay off the debt with the highest interest rates so that you pay as little interest as necessary. Another option is to pay a minimum amount on all accounts except the card or the least indebted account. That is where you would put extra money. When that account is paid off, you move that extra cash flow to the next smaller debt load, and so on. This is known as the “snowball” effect.

Credit transfer credit cards, such as the one proposed by Resnick, could have an introductory rate of 0%. This would be a great way to completely eliminate interest payments and get the most out of your repayments. However, these cards usually have a specific time frame for that 0% rate, e.g. B. 15 or 18 months until they skyrocket. When you go down this route, it is important to have a repayment plan and a backup plan in case you can’t cash it out before the 0% promotion expires.

Another option is personal bankruptcy, Resnick said. However, this path requires serious consideration as filing for bankruptcy has ramifications. Bankruptcies will stay on your credit report for up to 10 years, and many lenders may require people to wait four years before applying for a home loan. The most common type of bankruptcy, known as Chapter 7, allows individuals to keep certain possessions like wedding rings, home and auto equity, as well as professional tools (however, the rules vary by state). The good news: credit scores recover shortly after filing for bankruptcy, and that’s how the retirement assets in your qualifying plan are protected.

Don’t worry if the bankruptcy option doesn’t sound attractive to you. Matthew Benson, a certified financial planner and owner of Sonmore Financial, suggests paying off the debt in two to three years. This can mean finding extra income through working overtime, temporarily taking a part-time job, or postponing your expected retirement date a little (which would also “boost your retirement savings,” he said).

It sounds stressful, maybe even a little overwhelming, I’m sure, but Benson said he saw customers sacrifice that time and energy to pay off massive debts. “It takes a goal to get started,” said Benson.

Look at the column from MarketWatch “Retirement Hacks” for actionable advice for your own retirement savings journey

Remember, these are only suggestions – you must do what you can to improve your situation and not burn yourself out even more.

Now to social security. When to make social security claims is a very personal decision, but there are a few ways to think about it in your case. On the one hand, if you delay until at least your full retirement age, you’ll get more cash in your check every month, Benson said.

On the flip side, if you can’t increase your income in the short term until you reach full retirement age, drawing on it early wouldn’t be the worst – and it would help you pay off your debt faster, Resnick said.

“My assumption is that her consumer debt interest rate is higher than the growth factor for her social security, so if she can’t clear the debt or refinance it, early filing might make sense,” he said.

Try to keep contributing to your 401 (k) but maybe just focus on getting an employers match and use the rest of the available cash to pay off the debt, Benson said.

“This is a scenario where it is very difficult to see your long-term goals in the middle of debt,” he said. “I’m less concerned about the cost of debt and more focused on how it can be debt free so that it has a realistic picture of what the future would be.”

A financial advisor could help you navigate this new way of life. Resnick often recommends speaking with a financial planner before finalizing a divorce to find strategies to smooth the transition.

And remember, don’t be too hard on yourself during this difficult time. Divorce later has become much more common, and legal paperwork isn’t the only expensive aspect. “It is more expensive to live apart than together, which has a huge impact on a financial plan,” said Benson. “Often times, both of the divorced people will have to make significant changes in today’s lifestyle and future goals in order for things to work.”

Do you have a question about your retirement, including where you live? E-mail [email protected]

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