It sure is hard, these days, to get out of debt. Many of us lower-middle class, working-poor are living paycheck to paycheck, through no fault of our own, and we rely on credit cards for emergencies. We go into debt as a matter of necessity, rather than a whim. But there are ways to do it. I wanted to share with you, my readers, the debt situation seniors are facing, and give you some ways to pay off debt before retirement. So please read on, and give me any ideas you can think of to reduce debt and live within our means.
The Current Situation
Today, seniors are carrying debt into retirement more than ever before, and the amount of debt burden has skyrocketed over the past decade. For many, just keeping pace with the cost of daily living is a challenge. A Federal Reserve survey shows 40 percent of adults can’t cover a $400 emergency expense. This has a huge effect on staying out of debt, let alone saving anything for retirement.
I know that in my own situation, we are living paycheck to paycheck, and unfortunately use our credit cards as our emergency reserve. We don’t do anything fancy. We rarely eat out. We don’t go to movies. We don’t have the latest iPhone. Our cars are old and each have well over one hundred thousand miles on them. We go without things we want, and sometimes go without things we need. Our few extravagances include the basic package of satellite TV, and an occasional nice meal that we cook ourselves. We have health, dental, vision, and life insurance through my husband’s work. However, our deductible is really high. And because of that, we are still paying for an emergency surgery I had in 2016, even though it met our deductible.
We just recently paid down a personal loan that we got to pay off some of our bigger debts and a legal emergency that we could not avoid. But during the years it took to pay that off, we had other little emergencies that had to be addressed. We had major car trouble. We had a leaking pipe in the kitchen that ruined the floor, which we had to replace. My husband caught the flu, and because he also has asthma, had to go to the emergency room, which didn’t even come close to our deductible, though it cost an excess of $4000. We had to take a trip across the country when our grandson was born (a happy emergency, but a costly one, none-the-less.). We have been lucky that nothing major has happened.
Senior Debt Statistics
According to the Survey of Consumer Finances, the percentage of households headed by an adult aged 65 or older with any debt increased from 41.5% in 1992 to 51.9% in 2010 to 60% in 2016.
Median total debt for older adult households with debt was $31,300 in 2016 – more than 2.5 times what it was in 2001!
Also, occurring more frequently, seniors are having issues with rising medical costs:
- More than 84% of people aged 65+ are coping with at least one chronic condition, and often more as they age.
- A study in the Journal of General Internal Medicine revealed that out-of-pocket medical expenditures in the five years prior to an individual’s death totaled more than $38,000, leaving 1 in 4 seniors approaching bankruptcy.
Another common source of debt among senior households is credit cards. In 2001, only 24.2% of senior households held credit card balances; by 2016, more than 34.2% did.
According to the Survey of Consumer Finances, in 2016, 29.2% of older adult households owed money on a mortgage, home equity line of credit, or both. Of these, the median money owed was $68,500.
Detrimental Trade Offs When Dealing With Dept
A National Council on Aging survey found that seniors often make trade-offs to save money in the short term that can be harmful to their long-term health and finances. Among aging network professionals surveyed:
- 23% regularly encounter seniors forgoing needed home/car repairs, which increases the risk of accidents and falls–the leading cause of injuries among seniors.
- Nearly 15% regularly encounter seniors cutting pills, which can limit their effectiveness.
- Just under 14% regularly see seniors skip meals, which can lead to nutrient deficiency.
How to Get Out of Dept Before Retirement
I know it seems like an impossible task, but many have done it under today’s economic circumstances. Here’s a few tips that can help you.
Consolidate credit cards: You have likely seen ads or have been mailed fliers for deals you can get when you move your credit card balances to another low interest rate or deferred interest payment credit card. My advice is, don’t just take one of those offers. Shop around for the best deal for you. And don’t forget to look into using your personal bank. When we researched consolidating credit cards, our personal bank had the best deal.
Dept Relief: This is particularly helpful if you have huge medical bills on your credit cards. Dept Relief agencies take all your credit card debt, and negotiate with the credit card companies to lower the debt. They consolidate the debt, and get you one low payment agreement, that you can make to get out of debt in a very short time, sometimes months instead of years. Watch out though! There can be fraudulent parties that take your payments, but don’t do anything with our credit. Years ago, my husband got hooked up with a fraudulent outfit that ripped him off pretty badly. Once bitten, twice shy! Do some research, and check with your Better Business Bureau (BBB) or Consumer Reports to make sure you are getting a reputable company. National Debt Relief is BBB Accredited, in business since 2009, and they’ve helped over 100,000 customers get out of debt. If your debt load is $7,500 or more, National Debt Relief is a great place to start.
Work with a nonprofit credit counseling organization: These work much the same as the Dept Relief companies, but the difference is, you get debt counseling. Counseling, helps you understand how the credit card system really works, and helps you find ways to get out of dept and stay out of dept. Consumer Credit Counseling is a good company to help you with your personal situation.
Get a personal loan: We found this to be the easiest way. Take out a low interest loan and pay off those high interest credit cards. There again, your own person bank can help you out. Or you can go with a company such as Lending Tree. I recommend Lending Club. Our latest loan was through them, and they were great to work with.
Refinance your home: There are a bunches of factors you need to consider when refinancing your home. How long you have owned it, how much equity is in it, an assessment of the home’s value, and/or any changes you experienced in your personal and financial life are just a few items bankers use to make a determination if refinancing is right for you. You want to assure you are getting a low interest rate, and you should consider getting a lower house payment too, if that’s possible. Sometimes just a lower payment can help you reduce your debt because you will have more disposable income to use for paying down your debt. Consider all the options, and speak with a professional mortgage banker to assess your qualifications.
Home Equity Loan or “Second Mortgage”: This type of loan is similar to refinancing your home, but instead of rolling the debt into your home loan, you are borrowing against the equity. Again, the same factors for refinance would apply, and speaking to a mortgage banker would help you decide if this is the best route.
Ask a friend or family member: If you are lucky enough to have supportive friends or family that can help you, this is a great option. However, be sure to get your agreement in writing, because you never know what can happen in a family relationship or friendship (unfortunately I speak from experience!). You can get a promissory note, which is basically legal “loan paperwork”, from Legal Zoom. This paperwork will include:
- The names and addresses of the lender and borrower
- The amount of money being borrowed and what, if any, collateral is being used
- How often payments will be made in and in what amount
- Signatures of both parties, in order for the note to be enforceable
You can also speak with a lawyer on Legal Zoom for any other legal questions you might have pertaining to borrowing money from friends or family.
Loan against your 401(k): I have done this, not to consolidate debt, but to pay medical bills. Before you do this, however, be sure to consider several factors, like, do you have enough time before retirement to pay the loan back? Do you want to stay with the employer (with whom your 401(k) resides) for the duration of the loan? Is there a tax penalty if you do sever your relationship with your employer? Checking with your HR or benefits administrator with your questions, is a great first step.
Using retirement funds to pay off dept: This should only be done as a last resort. Remember there are tax penalties for taking your money out before retirement age. And look at interest rates as well. Your retirement account may be making more money than you are spending in interest on your debt, in which case it’s better to carry the debt than use your retirement money to pay it off. A financial adviser can help you make decisions on this particular method of debt relief.
Put yourself on a strict budget: Do a budget for yourself and your family. Make the hard decisions on what expenses can be cut, then make the cuts. Then use the extra money you found in the budget to pay down the debt. NOTE: You will never pay down the debt by making only the minimum payment If you do the math with the interest and finance charges mounting every month, you will see that it takes literally forever to pay off. You will need to make two to three times the amount of the minimum payment to have any impact on reducing the principle, so make sure your budget can handle that.
A Way Out You Should Consider
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It Can Be Done!
Getting out of debt is not easy, and takes a lot of self-control and discipline, but it can be done. Lots of people do it every day. I have been out of debt a couple times in my life, and it has felt really good. You feel less pressure and anxiety, and especially feel more free to make decisions in your life. So take some steps now to get yourself out of debt, and work to stay out of debt. This is one of the best things you can do while planning for your retirement, and one of the best gifts you can give your spouse and your family.
Please put your comments and questions below, and thank you so much for reading!