Have you ever consider how a poor credit score might affect your retirement? Minnesota retirees are thinking about it. Minnesota is number 5 on the top 10 States to retire to – which is very useful, as by 2020 there will be 21 people over 65 for every one person who is working age in the area.
That’s right; in less than ten years there will be 21 retirees for every one person aged between 25 and 64 in Minnesota. This statistic shows that there is a tremendous demographic shift in the Midwest state, so it is essential for future retirees to think about their upcoming retirement. After all, retirement can be more complicated than people realize, and a weak credit score could affect it further.
Here are some ways a poor credit score could ruin your retirement.
It Is Hard To Save When You Are Paying Off Debts
If you are paying off debt every month, it can be challenging to save, especially if you have numerous debts, as the money that you would be putting towards your retirement is instead being spent on repayments.
This isn’t ideal, as saving is an essential part of retirement planning – but it is possible to start sifting through the debt if you create a solid repayment plan. Start by writing down exactly how much you owe (as well as interest repayments), who you own the money to and any current outstanding balances. This will give you a much more unobstructed view of your financial situation. For instance, you will be aware of the debts with the highest interest, making it easier for you to pay off the most expensive debts first.
Once you have created a clear list of your assets and liabilities, you can make a list of your earnings and how they are spent (e.g., rent, taxes, car repairs). This will make it much easier for you to create a solid debt repayment plan so that you can start to clear your debt, making it possible for you to start saving for your retirement.
Over time this will help to improve your credit score, but it could take many years for this to happen, so it is better to start sooner rather than later.
A Poor Credit Score Makes It Hard To Scale Back
As people get closer to retirement age they tend to downsize; maybe they will sell a car or move to a smaller home, or perhaps they will refinance their mortgage for lower interest rates. This can make retired life much more affordable, but if you have a low credit score, you won’t have the opportunity to negotiate lower interest rates.
This can be especially problematic if your home is already financed. Higher interest rates over time mean you have paid off less of your principal loan, leaving you with less equity and more debt.
It also probably means that if you do sell your current home, it is very likely that you will need financing to move to a new residence. This creates a never-ending cycle of debt that a retiree on a fixed income may struggle to pay off.
High-Interest Rates Can Cause a Debt Cycle
People with a low credit score tend to pay higher interest rates over time, which creates a substantial financial burden. It can also make it harder to clear debt due to the never-ending expensive monthly charges, which could be why so many older people in Minnesota are still working; the percentage of Minnesotans between 55 and 64 who are still working full time has increased by nearly 10% in the last five years. This could be due to high-interest charges and debt, but it is still entirely possible for you to improve your credit score before you have to retire.
If you have high insurance premiums, it is very likely that this is due to your credit score. Although credit-based insurance scores are not officially FICO scores, most of the scores still incorporate many aspects of your credit score into their calculations (such as the length of your credit history, your payment history, and recent credit inquiries), so this can still affect your rates. It is worth noting that the use of credit-based insurance scores is banned in Hawaii, Massachusetts, and California, but if you live in any of the other states your insurance premiums will be affected by your credit score.
A Poor Credit Score Can Affect Your Job Search
If you are nearing retirement age, you may not be thinking about applying for a new job- but if you still have a few years to go, it is entirely possible that you are still hoping to advance with your career. There are lots of benefits to improving your career before you retire; the extra money can make your retirement much easier, and if you work towards the top of the company you may be able to continue working as a consultant for the company when you retire. This is a great way to supplement your income while alleviating boredom – but if you have a low credit score, it can be very difficult to find a new job.
This is because some employers will look at your credit score before they hire you. If your credit score is low, it is likely that they will choose another candidate over you, as they may see your low score as a sign that you have a poor judge of character.
While it is worth mentioning that an employer can’t directly deny you a job due to your credit score, they are allowed to use the score as a part of their decision.
A poor credit score can make retirement much harder, but if you have poor credit don’t worry too much. Lots of Americans have some form of personal debt, and it is entirely possible to clean up your credit card debt – you just need to make a concentrated every month to reduce your debt load so that you can start to make significant savings.