Retire Debt-Free Forever by Following These Practical and Effective Tips

Depending on what type of debt and how much of it you have, debt can hamper you financially in retirement, eroding your fixed income.

A recent study from Vanguard found that, of all the generations, Millennials and Gen Xers had the greatest amount of debt (excluding mortgage debt) with $11,000 and $10,000, respectively.

Retirees may find it challenging to pay off debt, as they no longer are earning a regular paycheck or getting raises.

“Non-mortgage debt in retirement, like credit cards, car loans or personal loans creates cash flow pressure at a time when income is fixed and predictable,” said Nathan Sebesta, a certified financial planner and owner of Access Wealth Strategies. “Every dollar going to interest is a dollar not supporting healthcare, lifestyle or legacy goals.”

These tips can help you get a handle on your debt.

Prioritize High-Interest Debt

High-interest debt, especially, can be detrimental to retirees. The interest rate that retirees pay on this type of debt is typically greater than the annual return they’d earn on their investment portfolio.

According to the Federal Reserve, the average APR across all credit cards as of August 2025, was a whopping 21.39%. In contrast, the average annual total return for the S&P 500 Index was 12.18% over the 15 years through Nov. 10.

“The factor overlooked is how much interest they [pre-retirees] are paying on their consumer debt against the average rate of return they’re getting on their investments,” said Bill Shafransky, a Senior Wealth Advisor at MONECO Advisors.

In order to develop a debt payoff strategy, Sebesta suggests getting a full picture of your finances well before you’re ready to retire.

“My advice to pre-retirees is simple: know your numbers early,” Sebasta said. “Build a realistic retirement budget, list every debt with balances, rates and payments, and create a payoff plan starting with the highest interest or smallest debts for momentum.”

The avalanche method, in particular, can help minimize the total amount of interest you pay on your debt, as this method prioritizes paying off debt with the highest interest rate.

With the avalanche method, you make at least the minimum payment on each type of debt, and you put any leftover funds towards the highest interest debt. After you’ve paid off the balance with the highest interest rate, you put any excess money towards the balance with the next highest interest rate, continuing to do so until you completely pay off the debt with the lowest rate.

Consider A Balance Transfer Card For Credit Card Debt

Balance transfer cards may not be the right option for everyone, but they can reduce the total amount of interest you pay if you’re strategic.

With a balance transfer credit card, you can shift the balance of one credit card to another, usually for a fee of 2% to 5% of the balance. When you transfer the balance, you’ll be given an introductory period, typically lasting six to 18 months, during which the APR can be as low as 0%.

Before you transfer your funds, compare the cost of the balance transfer fee to the amount you would be saving in interest. If you’d be saving more than you’d be spending on the fee, consider applying. To qualify, you’ll typically require a solid credit score.

Finally, develop a plan for paying off the full balance during the introductory period. When the 0% introductory APR period ends, the APR will increase and you can find yourself paying sky-high interest rates yet again if your balance is not paid off.