Practical ways to reduce debt and feel more in control of your finances during retirement

Going into retirement carrying debt might feel like a weight on your shoulders, but you’re not alone.

34% of UK retirees carry some form of debt, such as credit cards, personal loans, or mortgage.

It can happen to anyone. You have some kind of emergency and have to use credit to pay for it.  Maybe you’re struggling to deal with rising living costs.

Whatever the reason, it never pays to bury your head in the sand. Instead, focus on the small things you can do to take control and reduce your debt.

Debt doesn’t disappear unless it’s recognised and managed. In this guide, we’ll cover ways to reduce your debt and enjoy your golden years with more peace of mind.

WORK OUT WHAT’S REALLY GOING ON WITH YOUR MONEY
Many retirees feel overwhelmed or ashamed about their debt, but it won’t go away unless you face it. Fortunately, there are some simple, small steps you can take to get to a better place.

Firstly, list how much money comes in and where it all gets spent. Here’s a simple checklist you can use to help.

• List your monthly income, including:
  • state pension
  • private pensions
  • part-time work or other income
  • benefits or top-ups
• Next, make a list of your regular expenses, such as:
  • rent or mortgage
  • groceries
  • utilities
  • car insurance
  • birthday gifts
  • prescriptions
  • TV subscriptions
• List your debts separately and include the following info:
  • Companies or people you owe money to
  • Outstanding balance
  • Monthly payment
  • Interest rate

Once you have a complete list, look out for “spending leaks”. These are small regular costs that don’t seem like much of a big deal until you start adding them up. Leaks include things like takeaway coffees, unused subscriptions, online impulse buys, and “name-brand” groceries.

If you’re spending more than you bring in each month, then it’s time to trim down. This usually means plugging spending leaks and cutting back on luxuries. Switching to cheaper utility and insurance providers also helps.

Even small wins like finding an extra £50 a month make a difference when you’re on a fixed income.

If you get to a position where you’re spending less than your income, then great! You can put that extra cash towards overpaying debt or building an emergency buffer fund.

SIMPLE WAYS TO STOP SPIRALLING DEBT
There are two main strategies people use to repay debt – “snowball” and “avalanche”.

• Snowball method: This means paying off the smallest debt first, then moving your way up the list. Ticking off debts quickly in this way can help to build confidence and momentum.
• Avalanche method: This method means concentrating on the debt with the highest interest rate first, then moving onto the next highest. It’s the most efficient approach long-term, but it takes longer to feel like you’re making a dent.

Some people alternate between the two strategies, i.e. paying off the highest interest debt first, then clearing the smallest debt, then paying off the next highest interest, then the next smallest, and so on. This approach gives you a balance between momentum and efficiency.

In some cases, transferring your debt using a 0% balance transfer card can work out well, but be careful as they usually charge a fee between 2 and 4% and only offer zero interest for the first 12 to 18 months.

If you’re already struggling to make minimum payments or your income is really tight, it’s worth speaking to a debt charity like StepChange or National Debtline or a qualified financial advisor who specialises in retirement finances. They’ll help you explore your options, such as more structured debt management plans.

SHOULD YOU USE YOUR PENSION TO PAY OFF DEBT?
In some cases, using a lump sum from a pension pot to pay off debts is a good move, but it’s not always so straightforward.

Your pension is there to give you a regular income for the rest of your life. It isn’t designed to act as an emergency credit clearance. The moment you dip into your pension pot, you risk reducing your future income, especially if you withdraw large chunks of it.

If it’s a taxable withdrawal, you might end up paying more tax than expected. Depending how much you take, it could bump you into a higher tax bracket too. It could also affect your eligibility for benefits, such as Pension Credit

If you have a small, but high-interest debt, then taking money from your pension pot might make sense, but it’s best to talk to a financial advisor. They can help you explore ways to withdraw a modest amount that doesn’t derail future income.

DON’T MISS OUT ON FREE MONEY OR DISCOUNTS
Millions of pounds go unclaimed every year in the UK simply because retirees either don’t know what they’re entitled to, or assume they won’t qualify.

Around 850,000 eligible people don’t claim Pension Credit, often because they think they’ve got too much savings or they’re too embarrassed to ask.

PENSION CREDIT
Pension Credit is for people over State Pension age who are on a lower income. It helps them to top up their weekly income. If you’re eligible, it can open the door to other help too, such as:

• Free NHS dental care
• Help with housing or council tax
• Cold Weather Payments

If your weekly income is below about £220 for a single person or £320 for a couple, it’s worth checking. Even if you’re slightly above the threshold, you might qualify for part of it, so call the government pension helpline to find out more.

ATTENDANCE ALLOWANCE
Attendance allowance is a non-means-tested benefit for retirees who need help with things like washing, dressing, preparing food, or staying safe at home.

It doesn’t mean you must have a carer or full-time help to be eligible. You just need to show that your daily life is impacted physically or mentally. The allowance totals between £72 and £100+ per week. It isn’t taxed and doesn’t affect your State Pension, so it’s well worth looking into.

DISCOUNT SCHEMES
Councils and companies offer various discount offers for pensioners. Here are a few to get you started.

• Senior Railcard – gives you up to a third off train fares
• Bus Passes – apply through your local council
• Warm Home Discount – for cheaper energy deals
• Reduced Broadband and Phone Plans – offered by some providers if you’re on Pension Credit or Universal Credit

There are a few places you can go to find out if you’re missing out on any benefits or discounts, including MoneyHelper or the Turn2Us benefits calculator. Citizens Advice or Age UK are also good if you need help applying for benefits.

RELEASING MONEY FROM YOUR HOME TO HELP CLEAR DEBT
If you’re in the common situation of being “asset-rich but cash-poor”, e.g. your home is worth £300,000 but you’re scraping by on a limited income, there are ways to unlock some of that value.

Option 1: Downsizing
Selling up and buying a smaller or cheaper home can release a lump sum to help clear debts. It might also reduce ongoing costs like energy bills and council tax. However, downsizing is often a big emotional step, so take time to consider whether it’s right for you and don’t rush into anything.

Option 2: Retirement Interest-Only Mortgage (RIO)
A RIO mortgage is available to people aged 55 and over. It lets you borrow against your home, while only paying the interest each month. The loan capital gets repaid when you pass away or move into long-term care. It’s a way to reduce monthly outgoings without selling up, but you need to be confident that you’ll keep up with the interest payments or your home could be at risk.

Option 3: Equity Release
With a “lifetime mortgage”, you borrow a lump sum or receive regular payments against your home’s value. Interest is added to the loan and paid off when your home eventually gets sold. Some products allow voluntary repayments if you want to preserve more inheritance for your loved ones.

A note of caution — equity release can reduce the value of your estate. It can also affect your eligibility for benefits like Pension Credit or council tax support. Also, the interest adds up faster than people expect, so plan carefully.

EXTRA INCOME IDEAS (THAT AREN’T LIKE A FULL-TIME JOB)
When you’re retired, you probably don’t want to go back to a nine-to-five. The good news is, there are plenty of part-time and flexible options that fit around your life. Here are just a few popular extra income opportunities for retirees.

• Pet sitting or dog walking are great if you love animals and want something local.
• Tutoring is good if you’ve got experience in education or a subject you’re passionate about.
• Remote customer service roles are part-time online shifts you can do from home.
• A few shifts in a local café, garden centre, or shop are great for interaction and extra income.

Your confidence might have taken a hit if you’ve been out of the workplace for a while. That’s why it’s usually best to start with something small and manageable. Think about what you enjoy or what skills come naturally to you, then see if you can do a few paid hours per week.

Earning just an extra £100 to £200 each month can go a long way when you’re on a fixed income. It might help pay off a credit card faster or cover your council tax.

TAKING BACK CONTROL OF DEBT IN RETIREMENT
When you’re retired, it’s usually impossible to pay off debts in one go if you don’t have savings. Instead, try to chip away at the problem by reviewing one bill, cancelling a subscription, or making a £10 or £20 overpayment.

Small steps like this give you a sense of momentum. Start by making a checklist, then gradually tick off each item. And remember to be kind to yourself. Progress isn’t linear, so if you have to pause overpayments for a month, it doesn’t mean you’ve failed. Just pick it back up when you can.

If you’re unsure where to start or want a second opinion on your next steps, get in touch with one of our expert retirement finance advisors