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!
Such great info here. It’s kind of a scary situation that seniors in our communities are struggling. You’ve given some helpful ideas for folks who are willing to try something new. I would love for my own mom (who is a grandma!) to try something like this. I’ll pass it along to her!
Hello Katie, thank you very much for checking out my post. Yes, it’s alarming how many seniors are in dire straights. I’m kind of lucky. Even though I lost everything in 2008, I’ve been able to gain some back. So many were unable to. So, I hope I can help a few out, perhaps your mom as well. Thank you again for reading and commenting. Rhonda
I must say that due to the hard life and bad leadership and also wrong desicions that one people make has made them incure excessive amount of debits which most of them have been paying for very long time and due to this most of them don’t even have salary,I know all these because my dad was once in a situation like this and at a certain his reminder of his salary wasn’t enough to take of the family which to incurring more and more debt…but I thank God I encountered something like this a long time ago and I helped us get out of those debt and now he’s retired and fully independent…I would advise everyone to follow this article very well.
Hello and thanks for relating your story. I am so glad you and your dad worked through your debt issues and are on a good track now. It’s true, that debt can be a downward spiral, that once you get in, it’s definitely hard to get back out. But you have shown that Affiliate Marketing is a good path toward financial independence. Thanks for reading my post and sharing your story! Rhonda
This is a shameful piece of information for us as a Nation. Getting credit consolidation would be the first step, but you should consider it the end of the road rather than the beginning of a cycle. You should proactively and independently decide “NO MORE”. Otherwise, you’ll fail to the re-finance trap and won’t be able to have a normal life during your days of retirement.
Instead of getting debs to re-finance debs you could better look for getting a side online job to generate some additional income without representing a great sacrifice on your retirement lifestyle.
I really love your provided alternative. Wealthy affiliate is a great place to start as a newbie. I’ve been exploring it and I like the fact of not being alone in the path (there’s a really big and active community backing you up). Thanks for this great recommendation!
Hello Juan, thank you for your comments. Yes, it is pretty shameful that our seniors should be caught in the debt trap with no way out. It takes a lot of inner strength and sacrifice to get out. But yes, Wealthy Affiliate will help anyone, no matter how old, to learn a new set of skills and set up a business that will earn for retirement. Thanks again for checking in. Rhonda
It is so sad to read that many seniors are battling, even though they have worked hard all their lives. Surely when one retires, you deserve to live a life free from worries, and one should be comfortable to be able to enjoy life and still have money to go out and live it up.
You have offered some great advice on getting out of the debt trap, but I especially like the idea of affiliate marketing. It will keep one excited to be learning new skills and have the potential to earn again. The best part is that you have lots of time to peruse this, more so than a younger person who still has to go to work, so you can be successful all that much more quickly.
Hello Michel, thank you for reading and commenting on my post. Yes, I agree with you that one should be able to retire with no money worries. It’s a shame how elderly are treated, especially after having contributed to community success for years and years. Anyway, I agree too that affiliate marketing is a great way to even out the money issues for seniors. And I agree that with time on our hands, we can quickly achieve financial freedom. Thank you again for your thoughts. Rhonda
As they say, the same as me with small pensions. You ask God to keep the temperature going, we buy groceries at the action and discounts, repair your old wardrobe, wear sneakers only when you go somewhere, buy cabbage, bake bread or buy when you are at the action, you don’t have a date to go out… I could list tomorrow .Thank you for the post and the tips.
Kozakiv, thanks for your comments. You are correct that buying cabbage is a great way to save money. Cheap, goes a long way, is good for you, and can be prepared in so many different ways. I smiled when I read that. I too only wear my good sneakers when I go out! Makes them last longer. I love all the things you pointed out in how you save money. Thank you so much for your thoughts. Rhonda
Thank you for this insightful and helpful post on paying off debt before retirement.
I love the help you share as a way to get out of debt. They’re all helpful.
Among all these tips, I’d rather start a side business. I think it’s the best way to not only pay off my debts, but it can give me financial freedom. I know a lot of people who started a side business and are currently debt-free and living a freedom lifestyle.
And as you pointed out, affiliate marketing is a rewarded business model and the best way to go.
Hi Sebastian. Thank you for reading my article. I agree, that starting a side business is a great way to earn extra money to get out of debt. Wealthy Affiliate and affiliate marketing is a great way for seniors to do just that. It is pretty unfortunate that we can no longer get by with just one career, and feel secure. Now we have to have two jobs. But as you say, we can free ourselves from that by starting our own side business. Anyway, thanks for your comments. I really appreciate it! Rhonda