What strategy should I use to attempt to pay off both my secured and unsecured debts at the same time?

I am currently retired, and I receive $3,400 of income every month. I have $37,000 in a tax deferred annuity. My rent is $2,700 a month. Combined, my secured and unsecured debt totals about $54,000. How can I begin to start paying off this debt? Is it better to pay off one before the other or both at the same time? Should I use only my income and the money in the annuity or should I take out a loan? 

Debt, Retirement, Annuities
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December 2017

Retirement can be fulfilling, but sometimes, the finances can get very stressful. As you are trying to create a debt reduction plan, I would encourage you to begin by tracking all of your spending for a month or two. I think that cash flow is central to so much of financial planning. You can keep up with your spending any way that works for you--you can jot it down on a notepad or keep it in an Excel spreadsheet, or use a budgeting software. The trick is writing down everything--where did you spend it, and how much did you spend. If stores sell a wide range of products, you might separate groceries from clothing.

Once you have completed this, I want you to go back into your list and separate bills that have to be paid, called nondiscretionary spending, (like rent and insurance) from discretionary spending (like shopping or eating out). If your bills exceed your income, you will need to find a way to either spend less or, possibly, get a part-time job. Today, many people are working well into their seventies by choice because it increases their standard of living by so much. If you have money left after you have paid your nondiscretionary bills, you can use that to begin to pay off your secured debt.

As others have said, you may have penalties if you try to withdraw too much from the annuity. Additionally, I suspect it will only pay about half of your debt once the taxes are withheld, and you would be left with no savings at all. I'm not sure I think this is the best strategy.

Since you rent, I'm guessing your secured debt is a car, and if those payments are overwhelming, you may want to sell it and purchase a less expensive vehicle. Additionally, you might want to find less expensive housing. However, I don't know your circumstances, and there may be reasons why this isn't the right way forward for you. I really don't know enough about your background or where you live. I urge you to talk to a financial planner who is willing to act as your fiduciary. If you are having trouble finding someone, contact a local not-for-profit financial support service. Be very careful because some of the debt consolidated services will ruin your credit. Websites should probably end in .org (rather than .com) which means you are working with an organization rather than a company.

Best of luck! Peggy

December 2017
August 2017