How can you pay off debt in retirement?

The average pensioner owes £34,000: how can you pay it off?

Updated: 
portrait of shocked couple...

More people are retiring with significant debts than ever before. Recent research found that the average pensioner owes £34,000 - through a combination of outstanding mortgage balances, loans, credit cards and overdrafts. Once you hit your 70s, it becomes harder to borrow money cheaply, so as their retirement progresses, this debt gets more and more expensive

If you are approaching retirement, therefore, and are worried about debt, it's worth exploring the seven ways to clear your debts in retirement.

1. Work longer
One option is not to retire at all. If you continue work, alongside drawing a state pension, then your additional income can be ploughed into paying off your debts. If all of your state pension was to go into debt repayment, then working a few more years - and managing the debt more effectively - should enable you to clear the average debt before you retire.

2. Act as early as possible
If you are not yet retired, then the final few years at work can see you plough every possible penny into debt repayments, so that by the time you retire, you have less of a mountain to climb. Then, in the very early years of retirement, you should do as much as possible, as quickly as you can. You should still have access to competitive loans and credit cards, and if you can switch as much debt to an interest-free credit card as possible, then you can use the interest-free period to pay off a large chunk of debt without having to pay interest on it.

3. Consider money-making schemes
If you're spending every penny coming in on everyday costs and interest payments, then you need to think about ways in which you can generate extra income with which to pay your debts down. Everything from taking in a lodger to renting out your driveway, and renting out your spare room on AirBNB, can help you bring in a little extra cash - which can be used to pay down your debts.

4. Use your tax-free cash
The 25% of your pension that you can take as tax-free cash can be used to pay debts off. The experts particularly recommend this where people have borrowed at high interest rates - for example on a credit card or overdraft.
Those who are very risk averse may also want to pay off any balance remaining on the mortgage, so it is no longer on their mind. It has made less financial sense to do this since mortgage rates hit record lows, but sometimes paying off debt is as much about psychological security as it is about the best possible financial return.

5. Consider exploiting pension freedoms
Since the advent of pension freedoms, another option has been to withdraw more funds from the pension in order to pay debts off. Provider LV= says that 45% of those taking their full cash pots are using it to pay the mortgage and other debts.

This, the experts say, is useful for high interest debts. They point out, however, that if people are paying off very low rate mortgages and are happy taking more risk, their money may be more profitable if left invested through the pension - although there are no guarantees.

6. Think about downsizing
If you are ready to move on from the family home, and the kind of property you want is significantly cheaper, then there's every chance you could free up significant equity in your property and use this to pay off your debts. Of course, you will face the cost of moving, which in many cases will be around £30,000, so it doesn't come without its downsides. However, if it means you can clear the slate, then it may hold enough appeal to be worth the upheaval.

7. Consider equity release
If you have a significant amount of equity in your home, and you are in later retirement, then one option is to use equity release to free up some of this money and pay off expensive debts. You need to be aware you are simply swapping one kind of debt for another, and that interest on this debt will roll up and have to be repaid when you or your family sells your home, but in some cases this may suit.

Most common causes of debt

Most common causes of debt