What to Do If You're Retiring With Debt

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For a growing number of older Americans, the golden years have been tarnished by debt. If you're retired or will be soon, and too much debt is weighing you down, here are three common sources of senior debt, along with some suggestions for breaking free.

1. Mortgage debt

One of the tenets of wise money management is to be mortgage-free by the time you retire, ridding yourself of what is likely your biggest expense as you enter what may be a lower- and fixed-income season of life. However, for a growing number of older people, that is not the case.

According to the Federal Reserve, about 42 percent of households where the head of household is 65 to 74 years old had mortgage debt (a mortgage or home equity loan) in 2013 — up from 32 percent in 2004 and just 19 percent in 1992. Many such borrowers refinanced their mortgages in order to take advantage of low interest rates, but in doing so, reset the 15- or 30-year mortgage clock.

What to do? If your overall housing costs, including taxes and insurance, take up more than 25 percent of your monthly gross income, consider downsizing. Reducing or eliminating your mortgage and lowering what you pay for property taxes, homeowners insurance, utilities, and maintenance could do wonders for your financial peace of mind. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. Student loan debt

Much has been made of how indebted today's college graduates are. What's less well known is that the fastest-growing segment of the population with education debt is the 60-plus crowd. Most such borrowers took out loans for their kids or grandkids via Parent PLUS loans, or they co-signed on a student loan and now find themselves responsible for the payments.

According to the Consumer Financial Protection Bureau, the number of people age 60 or older with student loans quadrupled between 2005 and 2015 to 2.8 million.

What to do? Look into loan consolidation or rehabilitation (if you're behind on the payments). Both are preferable to default, in which case the government could reduce your Social Security benefits in order to collect.

3. Credit card debt

The overuse of plastic isn't just something that plagues the young. According to the National Council on Aging, in 2012, nearly one-third of households headed by someone age 60 or older carried a credit card balance. Are these older households simply living beyond their means? Some probably are, but an AARP survey found that over half the older households with credit card debt put their medical care on plastic.

What to do? If your credit card debt is unmanageable, consider contacting a local affiliate of the National Foundation for Credit Counseling. They may be able to negotiate lower interest rates. In addition, if you haven't done so already, don't put medical bills on your credit card. Instead, see if you can work out a payment plan directly with the medical provider, which may offer more favorable terms. (See also: The Fastest Method to Eliminate Credit Card Debt)

Other ways to ditch your debt

No matter how old you are, an important key to getting out of debt is margin — creating a gap between your income and expenses so you've got the money to make extra payments on your debts. There are only two sides to the margin equation: income and expenses.

Increase income by picking up a part-time job

By definition, retirement means not working anymore, so the idea of going back to work may not fill your heart with joy. However, even a temporary part-time job can make a big difference in how quickly you get out of debt. (See also: 6 Great Retirement Jobs)

Start thinking of where you could work. How about consulting with your former employer, hanging out a shingle as a sole proprietor, or simply picking up some hours at a local retailer?

Keep in mind that if you started claiming Social Security benefits before your normal retirement age, earning too much from a part-time job may reduce those benefits. Learn more on the Social Security Administration's website.

Decrease expenses by taking your kids off the payroll

It's common for parents to help their adult children with everything from health insurance premiums to cellphone bills. According to a Merrill Lynch study, nearly 70 percent of people age 55 or older with adult children are doing so.

Wouldn't it be easier for you to cut them off if you realized that doing so would not only benefit you, but it would benefit them as well? That's one of the key messages in the classic book, The Millionaire Next Door. Authors Thomas Stanley and William Danko found that adults who receive "financial outpatient care" from their parents tend to become dependent on such help and end up saving and investing less than those who do not receive money from their parents. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

There's plenty of time to retire debt

It may be discouraging to find yourself buried in bills at a time of life when you had hoped to slow down and enjoy the fruit of all your years of labor. However, increases in longevity mean you probably still have plenty of time to reap those rewards. What'll make all the difference is how quickly you implement the ideas mentioned above.

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