How to Be Debt-Free by Retirement

Retirement can be a time to pursue hobbies, spend more time with the people you love, and travel whenever the mood strikes. 

Carrying debt into retirement may not be ideal, especially if it prevents you from doing what you want. 

You don’t have to be debt-free by the time you retire. But paying off debt before you say goodbye to the job for good could bring you peace of mind and greater financial security. Here, we’ll take a deep dive into whether you should aim to become debt-free before you retire and help you make a plan to tackle your debt.

Do I Need to Be Debt-Free to Retire?

A debt-free retirement means you don’t owe money to anybody by the time you stop working. It’s a great goal, but it might not be realistic for everyone.

For some of us, paying off all debt before retirement might not be possible. Sometimes retirement happens sooner than you expected, and you may still have debts. Owing money doesn’t necessarily mean you have to work forever. 

Becoming debt-free by retirement is a personal decision. Whatever you decide, retirement will likely be more comfortable when you aim to: 

• Steadily reduce your debt, rather than accumulate more.

• Make sure your debt doesn’t interfere with paying for housing, groceries, and healthcare, especially if your retirement income is lower than your working income.

If you can accomplish both of these things, you’ll have a lot less money stress in retirement.

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What Debt Is OK in Retirement?

Carrying some debt can make sense in certain situations, as long as it doesn’t cause you stress or financial hardship.

Here’s an example of a debt you might not need to prioritize. Many people got a mortgage between 2012 and 2022 with an APR of 2% to 3%. Those rates are as close to zero as most of us will ever get on borrowed money. In fact, you might earn more than that in your high-yield savings account.

If you have a mortgage rate that low, it could make sense to focus on other financial priorities first. 

Compare how much you pay in mortgage interest with other money strategies. You may want to think twice before paying off your home if your cash could earn more in:

• High-yield savings 

• Brokerage or retirement account, invested conservatively

Likewise, paying for a car with a low interest rate may be smarter than paying cash that could be working for you elsewhere.

Should I Pay Off My Mortgage Before I Retire?

Think of paying off your mortgage before retirement as a luxury. Whether it’s a necessity depends on your retirement income. 

The monthly mortgage bill is probably your largest expense. Getting rid of that debt could free up significant room in your retirement budget. But it isn’t always necessary. 

It’s generally best to get rid of other debts before you pay off your mortgage. Mortgage debt tends to have far lower interest rates than other forms of debt, so you get more bang for the buck by paying off high-interest debts first. 

As of April 2025, rates on a 30-year fixed mortgage were just shy of 7%—which are among the highest we’ve seen in the past two decades. However, the Federal Reserve reports that the average credit card APR was about 22% in early 2025. It’s more important to pay off the higher interest credit card debt.

If you have an adjustable-rate mortgage (ARM), your payment amount could go up if interest rates rise. In that case, focusing on the debt could be a good idea. You could accelerate payoff, or refinance to a fixed-rate loan. Fixed payments could make budgeting easier in retirement.

Should I Pay Off My Car Loan Before I Retire?

Assuming you’ll still need a vehicle and you’re paying off an auto loan, compare the cost of the loan against your other debts.

Though car loans have higher interest rates than mortgages, rates are still typically lower than most other types of debts. If your car payment is among your higher-interest debts, you may want to pay it off before you retire. But prioritizing costlier debts, like credit cards, is often a smart move.

Should I Pay Off My Student Loans Before I Retire?

If you’re nearing retirement and have student loan debt, you’re certainly not alone. AARP found that about 22% of the $1.6 trillion in student loan debt Americans owed at the end of 2020 was held by people 50 and older. 

Many took out Parent PLUS loans or co-signed private loans for their child’s education. But it’s also common for retirement-age people to have debt because they went back to school to boost their career opportunities.

If you’re trying to decide whether to pay off your student debt by retirement, there are a few factors to consider: 

• Your interest rate

• Your monthly payments

• How long you have left on the loan

• Whether you owe federal student loans vs. private loans

Private student loan repayment strategies depend on what your lender offers. Private lenders seldom offer loan forgiveness. In a few scenarios, you might qualify for forgiveness; for instance, if your school defrauded you.

Low Payments On Federal Student Loans In Retirement

When you’re on a fixed income and have federal student loans, you might be eligible to lower your payment by enrolling in an income-driven repayment (IDR) plan. IDR plans cap your monthly payment at a percentage of your discretionary income based on your income and family size. 

IDR plans are often a good choice for people retiring with limited income. Since your payments are based on discretionary income, you could pay as little as $0 per month.

Usually, you can have your loan forgiven after you make 20 or 25 years’ worth of qualifying payments, depending on the plan. There’s some uncertainty around how the current administration will handle forgiveness programs. A federal court in February 2025 put the SAVE plan—which included a forgiveness option—on hold. Other IDR plans are still accepting new applications.

Paying off your student loan debt can bring some certainty to your retirement years. If you have student loans and don’t expect to be debt-free by retirement, ask your servicer about ways to keep your monthly payment as low as possible or explore other paths for student loan debt relief.

Should I Pay Off My Credit Card Debt Before Retirement?

Because credit card debt tends to have higher APRs than most other types of debt, it’s smart to pay down credit card balances before retirement. The debt snowball and debt avalanche methods are two great strategies for getting rid of credit card debt by retirement.

• Debt snowball method: You pay off your credit cards starting with the smallest balance, working your way up to the largest debt.

• Debt avalanche method: You pay off your cards according to their interest rate. Start with the card that has the highest APR, then work your way down.

Not sure if these approaches will work for you? You still have options. 

A debt consolidation loan can lump your existing unsecured debts into a single payment and might save you money on interest.

Another possibility is a debt settlement plan for credit card debt. Debt settlement is an agreement with your creditors to reduce the amount you owe. You can negotiate with your creditors directly, or you can work with a professional debt relief company to negotiate on your behalf.

4 Steps to Be Debt-Free by Retirement

Whether you want to be 100% debt-free by retirement or get your debt to a manageable level before you retire, here’s an action plan to follow.

Take inventory of all your debts

Tallying up your debts doesn’t have to be scary. You have many strategies to choose from. Knowing how much you owe is the first step to figuring out which could work best for you.

Make a list of everything you owe, including:

• Mortgage payments

• Car loans

• Student loans

• Credit cards

• Personal loans

• Home equity loans and home equity lines of credit (HELOCs)

Include the outstanding balance, minimum monthly payment, and the APR. You don’t need to include monthly bills, like utility payments and grocery costs, since these aren’t debts.

Avoid taking on new debt

A good goal if you want to be debt-free by retirement is to stop taking on new debt. This may mean you have to stop using credit cards and stick to your debit card or cash. Do whatever it takes so that you’re not adding to your debt each month if at all possible.

Make a budget

Your next step is to make a monthly budget based on your current income and expenses. A number of tools, like budgeting apps and free budget worksheets, could make the process easier. 

Make sure you include the following monthly expenses:

• Rent or mortgage payment

• Car payment

• Groceries

• Medications and healthcare co-pays

• Gas and other transportation expenses

• Minimum debt payments for all credit cards and loans

• Insurance (home or renters, auto, health)

• Childcare expenses

• Pet expenses

• Clothing

• Discretionary purchases (entertainment, vacation, meals out)

You might want to budget for your irregular expenses each month. These can include things like car registration fees, annual memberships, or the occasional repair.

Also include all income sources, including:

• Salary or hourly wages (including typical tips, bonuses, and commissions)

• Self-employment or freelance income

• Social Security

• Disability income

• Child support or alimony

If you have money left over each month, you’ll need to decide whether to apply it to savings vs. debt. You could also split your extra funds between the two. If you’re putting extra money toward debt payments, prioritize high-interest debt, like credit cards.

Estimate your retirement needs

Once you have a plan to address your debt, you’ll need to figure out how debt factors into retirement planning. Though you don’t have to be debt-free by retirement, life will probably be a lot easier if you can afford your minimum debt payments without jeopardizing your basic needs.

This step will look similar to the previous one, but you’ll have to break out your crystal ball and make some predictions.

For example, if you’re planning to downsize your home, you may be able to reduce your projected housing costs. Or if you’re planning to ditch your car (or become a one-car household), you may be able to get rid of a car payment. Some people also find that they spend less on things like gas and clothing once they’re retired.

Make sure you include all your expected sources of income, too. Common sources of retirement income include: 

• Social Security, 401(k) and IRA withdrawals 

• Other investment income (like dividends) 

• Pensions 

• Earnings from a part-time job

• Income from using your home equity (sometimes from a reverse mortgage)

The numbers don’t pencil out for everyone. You may find that your expenses add up to more than you earn when you make your budget, or that your retirement income is unlikely to cover your future needs. 

There’s no shame in that, but it’s important to take action. 

You’ll need to create a strategy to avoid going deeper into debt. You could meet with a credit counselor to make a realistic plan for paying down debt before you retire. Another option is to get a free debt evaluation from a reputable debt settlement company. If your retirement income causes you financial hardship, you might qualify for partial debt forgiveness. 

Whatever your debt situation, you have alternatives. Acting sooner than later could help you get back on track for the healthy and happy retirement you deserve.