A recent survey by Vanguard revealed that Millennials and Gen Xers carry the most amount of non-mortgage debts, with an average of $11,000 and $10,000, respectively. Such debts could significantly strain fixed retirement incomes, interfering with healthcare, lifestyle, and estate planning.
High-interest debts, such as credit cards, personal loans, and car loans, can particularly burden retirees. As per the Federal Reserve, the average annual percentage rate (APR) across all credit cards was 21.39% as of August 2025. This is notably higher than the S&P 500 Index's average annual total return of 12.18% over the 15 years through Nov. 10.
Nathan Sebesta, a certified financial planner, underlines the significance of devising a debt payoff strategy well before retirement. It entails building a realistic retirement budget, listing all debts along with their balances, rates, and payments, and designing a payoff plan prioritizing either the highest interest or smallest debts to generate momentum.
Implementing the avalanche method can specifically curb interest payment on your debt. This strategy involves making at least the minimum payment on every kind of debt, then directing any additional funds to the debt with the highest interest rate. After clearing this balance, the surplus money is used for the balance with the next highest interest rate until all the debts are paid off.
Balance transfers might be suitable for some, facilitating the reduction of total interest payment. Using this technique, the balance of one card gets transferred to another, typically carrying a 2% to 5% fee of the total balance. The transfer leads to an introductory period where the APR could even be 0%. To benefit from this method, a good credit score is usually necessary.
Lastly, formulate a plan to completely repay the balance during the 0% introductory APR period to avoid the resumption of high interest rates after the introductory period ends.