Here’s a scene that plays out in a lot of households the year before retirement. The spreadsheet is open. The Social Security estimate is printed out. Everything looks close to workable — except for that one line near the bottom. The mortgage. That credit card that crept up during a rough stretch a few years back. Or the car payment that never quite went away. It’s a strange feeling to have worked for decades and still be writing checks to somebody else every month. If that’s where you are right now, you’re not behind, and you’re not alone. You’re just at the point where it’s worth taking a real, calm look at what that debt actually costs you. That cost changes once the paychecks stop.
Why debt hits differently once the paychecks stop
While you’re working, debt is uncomfortable, but it has a pressure valve: next month’s paycheck. A tight month can be absorbed. A bit of overtime can catch you up, and a raise eventually outpaces the payment. Retirement removes that valve. Once you’re living off Social Security and withdrawals from savings, a debt payment isn’t competing with a paycheck anymore. It’s competing directly with your grocery budget, your health insurance premium, and every other dollar you have.
There’s also a subtler risk that shows up specifically in retirement, and it has a name: sequence-of-returns risk. Say the stock market drops the same year you need extra cash for a mortgage payment or a credit card bill. You may end up selling investments at a loss just to cover that debt. That locks in a decline your portfolio might otherwise have recovered from. A steady paycheck never forced that choice. A fixed monthly debt payment, paid from a shrinking pool of savings, sometimes does. (Our guide to retirement withdrawal strategies walks through why the order in which returns happen matters so much once you start drawing down a portfolio.)
Not all debt deserves the same urgency
Here’s where a lot of retirement advice oversimplifies things. It treats “pay off all your debt before you retire” as one single rule. But a credit card balance and a 30-year mortgage don’t behave the same way at all, and the difference comes down to the interest rate.
As of mid-2026, the average interest rate on a credit card balance that’s actually accruing interest is 22.15%. That figure comes from the Federal Reserve’s own consumer credit data. Paying off a balance at that rate is, in effect, a guaranteed 22% return with zero market risk. No diversified investment reliably delivers that, year after year, with certainty. Say you’re carrying an $8,000 balance at that rate while a similar amount sits in a savings account earning 4%. The gap between those two rates is costing you roughly $1,450 a year, every year the balance stays open.
A mortgage tells a different story. Freddie Mac put the average new 30-year mortgage rate at around 6.7% in August 2026. Many retirees, though, are sitting on mortgages refinanced years earlier at 3% or 4%. Stock markets have historically returned more than that over long stretches, though never with a guarantee attached. That doesn’t mean paying off a low-rate mortgage early is a mistake. There’s real comfort in a lower fixed monthly obligation once you’re on a fixed income. But it’s also a genuine trade-off between peace of mind and potential growth — not a clear-cut “pay it off no matter what.”
Credit card rate: Federal Reserve G.19, accounts assessed interest, May 2026. Mortgage rate: Freddie Mac Primary Mortgage Market Survey, August 2026. Stock market figure is a commonly cited long-run historical average and is not a promise of future returns.
What the numbers actually show
If any of this feels close to home, it helps to know how common it really is. In the Employee Benefit Research Institute’s 2026 Retirement Confidence Survey, 65% of workers said debt is a problem for their household. A quarter called it a major one. Half were carrying credit card debt, and nearly a third had more than $25,000 in debt outside of a mortgage. About three in five workers said debt was making it harder to save for retirement, or to feel good about affording one. Roughly three in ten current retirees said the same about their day-to-day comfort.
The trend has also been moving in a noticeable direction among older households specifically. Between 2001 and 2016, the share of households headed by someone 65 or older carrying a credit card balance climbed from 24% to 34%. The typical balance nearly doubled. Mortgage debt followed a similar path. EBRI research found that among households 75 and older, the share carrying a mortgage more than doubled between 2001 and 2011. Typical mortgage balances grew by more than 80% over that same decade. None of this means something has gone wrong with your planning. It reflects a broader shift — people are financing homes, cars, and daily life later into adulthood than earlier generations did.
A few ways people actually work through it
None of these require a dramatic overhaul, and you don’t have to do all of them at once.
- List every debt by interest rate, not by balance. It’s tempting to attack the biggest number first. But tackling the highest rate first — often called the “avalanche” method — saves the most money over time. If watching a balance disappear quickly keeps you motivated, paying off the smallest balance first (the “snowball” method) works too. The best method is the one you’ll actually stick with.
- Separate “high-rate” debt from “low-rate” debt before you decide how urgently to attack each one. A 22% credit card and a 3% mortgage are not the same emergency, even though they can feel equally heavy.
- Be cautious about home equity lines of credit as a payoff tool. Rolling credit card debt into a HELOC can lower the interest rate. But it also turns unsecured debt into debt secured by your home. That’s worth thinking through carefully, ideally with someone who isn’t selling you the loan.
- If you’re still working, consider timing your Social Security claim with debt in mind. Carrying heavy monthly payments can quietly push people toward claiming Social Security earlier than they otherwise would. That choice permanently locks in a smaller monthly benefit. Our Social Security guide walks through how claiming age affects your benefit for the rest of your life.
- Talk to a fee-only fiduciary advisor before making a big move. That includes things like tapping a 401(k) early to pay off a mortgage, or refinancing this late in the game. A one-time consultation is often worth far more than the fee.
The bottom line
Debt in retirement isn’t a moral failing, and it isn’t automatically a five-alarm fire either. It’s simply a set of numbers that behaves differently once your paycheck stops. From then on, your income comes from a fixed pool of savings instead. High-rate debt is worth attacking aggressively. Almost nothing else you can do with your money offers that same guaranteed payoff. Low-rate debt is worth a calmer conversation about comfort, flexibility, and what actually helps you sleep at night. Either way, the goal isn’t to arrive at retirement with a spotless balance sheet. It’s to arrive with a debt load you understand — one that isn’t quietly working against you every month.