A Guide to Debt Management Before Retirement

31 Aug, 2022
  • Written By: Frederick Arkoh

After working for so many years comes a period where you need to sit back, relax, reflect on your working life and enjoy the fruit of your labour. Enjoying your retirement period needs proper planning during your active working life and one of the key things you need to take into consideration is managing your debt before retirement.

Carrying debt into retirement may be very detrimental to you. You may end up using all your accumulated saving and retirement benefits in servicing the debt.

The income replacement ratio for most retirees in Ghana tend to be low. A report from Social Security and National Insurance Trust (SSNIT) in February 2019 indicated that 78% of retirees receive GHS1,000.00 or less whereas only 1% receive GHS 5,000 or more as monthly pensions. However, recurrent expenditures such as health, daily expenses, utility bills, and possibly rent (if you do not own a house) will be competing for your income during retirement. These expenditure put a lot of constraint on your already reduced income. Therefore an additional expense like debt will further deplete your already reduced income at a faster pace and may force you to borrow more to close the gap.

This pitfall is very avoidable with carefully executed strategies like below:

I. Have control over your spending

One of the main drivers of debt is your spending habit. Do not let your spending control you, rather you need to have control over your spending habit. The fact remains; human needs are insatiable whereas resources to satisfy these needs are limited. Spending more than you earn will let you borrow to cater for your extra expenses. Your income might not be enough but living within your means is a sure way of avoiding unnecessary debt. One of the tools to assist you in controlling your expenditure is having a written budget. Having a written budget is not enough but the discipline to stick to it is very important.

A budget helps you to keep track of your inflows (Incomes), your outflows (Expenses) and establishes whether you will have a surplus (ie. Income is more than expenses) or a deficit (ie. Expenses is more than Income). Once your expenses are more than your income, then you need to take drastic measures to reduce your expenditure.

II. Organize your debt

Organizing debt involves trying to establish how much you owe. List all debts you owe, amount involved as well as the creditor, interest, duration of payment and timelines for payment. Organizing your debt gives you a clearer picture of your total debt as well as how much of your income you use in servicing the debt. You may be facing financial challenge if you use more than 50% of your income in servicing debt. You can find out your debt-to-income ratio by dividing your total debt payment by your total income.

III. Develop a debt servicing plan

Once your total debt is known, a good debt servicing plan will help you eradicate your debt. One strategy we recommend is the “Debt Snowball Strategy”. Debt snowball strategy involves paying off debt by focusing on the smallest balance before moving onto the larger balances.

Getting rid of the smaller debts first, will motivate you to pay off larger ones. You can use any extra income and windfalls such as bonus to help you pay off your debt faster.

IV. Avoid taking on new debt

In admittedly debt has become part of our life. You do not have to take a new debt if you are not done with paying off the existing one. If you do that, you compound your debt and make it difficult in servicing it.  You could sell off your old debt to a financial institution if the rate offered is lower than the rate you were paying on your old debt taking into consideration all other costs. For instance, if you have an outstanding loan balance of GHS 50,000 at a rate of 20%, you can sell it off to another financial institution who is willing to buy it at a rate of 18%. This helps you to save 2% on interest payment. Whenever you want to borrow, you should also have a repayment plan. It is more prudent to take a debt for an income generating project that will be able to pay off the debt.   

Any time you want to borrow from a friend, relative or a financial institution, ask yourself whether you really need it or can survive without it.

V. Have an emergency fund

An emergency fund will provide financial support to you in the event of unforeseen circumstances like job loss or other unplanned expenses. Having an emergency fund will help you avoid taking unplanned debt for such emergencies. It is recommended that you should have at least six (6) months salary saved in your emergency fund.  You can do this by opening an investment account which is easily accessible and making a conscious effort to put at least 10% of your salary every month into your emergency fund account.



Axis Pension Trust partners workers throughout their retirement planning journey to ensure they are on track to achieve a dignified retirement. For more information on our services or general enquiries, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or call 030 273 8555.


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