When most people think about credit card debt, they picture college students and young couples trying to make ends meet. While the younger generation is still the worst at managing credit card debt, retirees and baby boomers have become the fastest growing segment with debt problems.
According to a 2004 study conducted by the Demos research and advocacy organization, nearly one-third of Americans 65 and older carry balances. Between 1992 and 2001, credit card debt among indebted retirees increased by 89 percent.
Older Americans are finding themselves in this situation because they are simply trying to make ends meet on fixed incomes. The same Demos study showed that 40 percent of their income is spent on debt payments, including mortgage debt.
Everyone wants to live a comfortable retirement, free from the struggle of credit card debt. If you find yourself in a situation where your debt is unmanageable, the following are four debt-management strategies that can help you get out of the red.
1. Look into a reverse mortgage. This type of loan converts home equity into cash for homeowners age 62 and older. The money can be received on a monthly basis, as a lump sum payment or can be used as a credit line. The loan does not have to be paid back during the homeowner’s lifetime, so long as they continue to live in the home. It is not taxable and does not affect Social Security or Medicare.
2. Give yourself a loan with your life insurance policy. A cash-surrender loan is a viable option for people holding a permanent life insurance policy with cash value. A life insurance policy has an amount of cash available should the policy be canceled before the benefits become payable. A policyholder can take up to 96 percent of the cash value available in the form of a loan that does not have to be paid back.
3. Consolidate your credit cards. There are many consolidation loans available that offer lower interest rates and allow you to lower your payments or apply more toward the principal.
4. Think twice before tapping into your savings. If you are fortunate to still have money in savings, it may not be wise to use those funds. If your money is in a long-term savings vehicle such as an annuity or CD, you may be better off letting that money grow. Although, if your credit cards are accruing interest at a higher rate than what you are earning, it may make more sense to use a portion toward your debt.
Once your credit card debt is under control, your number one concern should be saving for retirement. It’s never too early or too late to start. If retirement seems out of your grasp because of credit card debt, it might help to talk with a professional who can give you advice specific to your situation. He or she can help you develop a long-term savings plan so you can enjoy your golden years.
Eric Heckman is president of Heckman Financial & Ins. Contact him at www.WealthCreator.com or 297-9800.
