Prioritizing paying off debt before retirement? These balances may need different treatment.

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For many Americans approaching retirement, eliminating debt can feel like an obvious item to put near the top of the financial to-do list. After all, without a paycheck coming in, it can be tough to cover mortgage, credit card or other loan payments, as you'll need to fit those payments into a stricter budget reliant on Social Security, pension income or retirement withdrawals. The problem is, though, that debt remains a significant issue nationwide right now, so millions of Americans are still trying to get rid of their balances before entering retirement.

The type of debt, the interest rate and the financial resources required to eliminate it can matter just as much as the amount owed. As a result, some balances may warrant aggressive repayment before retirement, while others may call for a more measured strategy. So which balances need to be treated differently when you're paying off debt before retiring? That's what we'll examine below.

Prioritizing paying off debt before retirement? These balances may need different treatment

At today's card rates, even a relatively modest balance can generate significant interest charges and require sizable payments each month. That can become especially problematic after retirement, when income may be more limited and unexpected expenses could otherwise push card balances higher.

So, paying down credit cards aggressively while still earning employment income may make sense. And, depending on the circumstances, options such as a balance transfer, lower-rate consolidation loan or debt management plan could also reduce the cost of repayment. Those with more substantial balances may also need to explore whether other debt relief strategies are appropriate.

The decision on how to handle a mortgage may also depend on the tax treatment of the loan. Qualified mortgage interest can be deductible for homeowners who meet the requirements and itemize their deductions. In turn, making regular mortgage payments while maintaining a healthy cash reserve and continuing to build retirement savings could therefore make more sense than racing to eliminate the balance.

For example, paying off an auto or personal loan before retirement could be valuable if the rate is high or the payment consumes a meaningful portion of the expected retirement budget. Eliminating a monthly car payment that takes up hundreds of dollars in the budget could provide more breathing room than paying extra toward a low-rate mortgage with years remaining.

That doesn't mean student debt should be ignored by soon-to-be retirees. Defaulted federal loans can have serious consequences, including the potential withholding of part of certain federal benefits. But borrowers may want to evaluate their available repayment options before using retirement assets or substantial cash reserves to eliminate these balances all at once.

Before accelerating payments, consider the interest rate, monthly obligation, tax implications and what paying off the balance would require. After all, the goal isn't simply to retire with as little debt as possible; it's to enter retirement with a financial structure that can remain manageable for the years ahead.

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