Pensioners in debt
Figures released recently show that pensioners are in debt: thousands of older people are struggling with debt and many have opted to cash in their pension pots to pay it off. People approaching retirement report that the main financial pressure they feel is debt and that their main debt is their mortgage.
Pension reforms introduced in April mean that many of those aged 55 or over can access their pensions and use the money for whatever they wish, including paying off their mortgage. However, some mortgage providers make a charge for early repayment.
But is it a good idea to use your pension to pay off debts?
There are a number of other ways of reducing or controlling your level of debt:
Budgeting – set out income and expenditure to see exactly where the money is going each month. Be brutally honest and you may be surprised at the results. Look for areas where you can spend less. The Money Advice Service website (www.moneyadviceservice.org.uk) includes useful online tools.
Shop around for better deals on things like car and contents insurance, electricity, gas, broadband and mobile.
Check welfare benefits and grants at www.entitledto.co.uk and make sure you claim everything you’re entitled to.
Interest-free credit card – there will be a balance transfer fee to move the balances from other credit cards (usually around 2.9% of the amount being transferred) but then you may have as many as 25 months to pay it off, depending on the card.
Increase your monthly mortgage payments to pay off the debt more quickly, but check with your lender first. If you don’t want to commit to a larger repayment, it should be possible to leave the payment as it is but make an additional payment each month or when you can.
Equity release – allows you to take money from the value of your house while still living there. It is paid back out of your estate when you die. Not to be undertaken lightly or without legal advice, and make sure you choose a provider in the Equity Release Council: www.equityreleasecouncil.com.
Take in a lodger – seek advice first: www.gov.uk/rent-room-in-your-home is a good place to start.
Downsize if you don’t mind leaving your home. Remember to take into account the costs of selling and moving (solicitors and estate agents etc).
Debt consolidation loan – if you have loans from a number of lenders, a debt consolidation loan may help you manage the payments more easily and could be cheaper.
