NEW YORK (4/2/13)--Take a debt snapshot of older Americans and the picture looks bleak, but the debt they're carrying isn't what you might expect (The Wall Street Journal
Recent studies confirm that seniors are headed into retirement carrying higher levels of housing and unsecured debt, and even student loans, threatening their retirement dreams. They are helping adult children and grandchildren cope with unemployment, divorce, and education costs. The one-two punch of the recession and plummeting home values didn't help their already precarious debt situations (The Wall Street Journal
The latest report from the Employment Benefit Research Institute revealed that for those 75 or older, the percentage with a mortgage or other housing loan was 24% in 2010, up from just 7% in 1992.
New data from the Census Bureau show that more Americans are paying off debt compared with 2000, but those still saddled with debt owe about 40% more (USA Today
Mar. 21). The percentage of households with debt fell to 69% in 2011 compared with 74% in 2000, while the median debt load jumped to $70,000. Over the same time period, debt owed by seniors doubled, to a median of $26,000.
April is Financial Literacy Month, which is a good time to proactively start managing your debt:
Know what you owe. If you don't, this may be a warning sign you have too much debt.
Charge it--responsibly. Only charge as much as you can afford to pay in full when the bill comes due.
Power pay your way out of debt. This principle involves listing all your debts and the respective interest rates, then paying off the most expensive debts first while making at least minimum payments on everything else. Don't add new debt in the meantime. Visit powerpay.org.
Find extra money to pay off debt faster. Plug spending leaks, establish a budget, adjust your withholding, add extra income, or liquidate some assets. Use some of that extra money to build an emergency fund.
Keep your debt-to-income ratio less than 15%. This is your total monthly payments (less mortgage or rent) divided by your after-tax income. If the ratio is between 15% and 25%, use caution. If it's higher than 25%, seek help.
Avoid expensive forms of credit. Steer clear of high-cost payday loans, advance fee loans, high-interest debt consolidation and debt-settlement.
Don't ignore creditors. Make a good faith effort and call them before they call you. Before you call, know what you can afford to pay, negotiate a repayment plan, but don't agree to any plan you know you cannot afford.
Get help. Ask the staff at your credit union about financial counseling, or contact the National Foundation for Credit Counseling at 800-388-2227.
For more information, read "Parents: Borrow for Kids' College, Jeopardize Retirement" in the Home & Family Finance Resource Center