As older adults wrestle with changing income and expenses, some find themselves burdened by debt. Having debt in retirement can be scary and comes with different financial challenges than debt for younger adults. For seniors in debt, managing money can become more difficult as finances change. However, it’s possible to create a healthy path to financial freedom.
Read more about financial challenges impacting seniors and strategies to help seniors get out of debt.
Common types of debt for seniors
Inflation and the high cost of living impact all Americans, but especially older adults with fixed incomes. While older adults report they have personally saved money for retirement, about one-quarter say that debt negatively impacts their ability to save for or live comfortably in retirement.
Debt in retirement can come unexpectedly. Increased healthcare costs, reduced income, medical and housing expenses, and unexpected emergencies all contribute to older adults’ debt burden.
Medical debt
More than one-third of retirees say their healthcare expenses in retirement are more than what they expected. Americans over 75 years of age report spending 16 percent of their budget on healthcare.
As seniors develop more ongoing complicated health problems, they visit the doctor more often and incur more medical bills. If you do not pay those bills by the due date, they become medical debt.
Medical debt is any bill for healthcare services that has not been paid. Four million older Americans have medical debt even though most of them have health insurance.
Smart Strategy: Many healthcare providers will negotiate their prices or provide discounts. Call your provider to ask for a discounted rate before your healthcare procedure.
Some medical debt results from billing errors. If insurance denies a healthcare charge, the provider often sends the bill to the patient.
Smart Strategy: Ask for an itemized bill from your healthcare provider with the billing codes. Then, call your insurance company to find out why your bill was denied. If the bill was coded incorrectly, call your provider back and request that they bill with the correct codes. This could reduce your bills significantly.
Housing debt
Buying an expensive dream home may seem like a great idea in mid-life, but it could make life harder later in life. More than 11 million senior adults spend about one-third of their yearly income on housing-related expenses each year.
Smart Strategy: Talk to a trusted financial advisor to discuss whether downsizing or taking out a reverse mortgage is a good fit to pay off debt in retirement.
Credit card debt
Many Americans have credit card problems. When older adults spend more than they make and pay for those things with credit cards, the interest on their bills can grow quickly. Some credit card interest rates are over 20 percent. This means you will pay almost 25 percent more for your purchases if you don’t pay your bill on time.
Over the past two years, credit card debt and other unsecured debts across the nation have grown significantly. Credit card debt grew by 4.4 percent to an average of $3,316 for people over 80 years of age. Baby boomers’ debt increased by 7.6 percent to an average of $6,245.
Smart Strategy: Don’t hesitate to get help with your credit card debt. A non-profit credit counseling agency can help seniors in debt avoid late fees and get out of debt, so they can enjoy your retirement.
WARNING: Many scammers try to steal seniors’ money by offering debt assistance. Choose a non-profit credit counseling agency that is a member of FCAA. These organizations are vetted and can be trusted to help you get out of debt.
More smart financial strategies for seniors in debt
Many retirees report that their overall spending exceeds what they expected. Sixty-seven percent of seniors worry that the increased cost of living will make it harder to make debt payments and live on retirement savings.
These three steps will help you get your finances in order:
1. Organize your financial information
Pull together all of your financial documents. Include credit card bills, mortgage debts, utilities, car payments, food bills and other expenses. Also consider money in your bank accounts as well as income from retirement accounts, social security benefits, etc.
Add everything up to see if your expenses are below your income. Be sure to make notes about interest rates and minimum payments. This will help you get a clear picture of your financial situation.
2. Build a better budget
A budget is a plan for how to use your money to your benefit. Sticking to a budget helps people of all ages stay out of debt and prepare for a comfortable retirement.
With the financial information you gathered, start tracking your income and expenses over time. Look back and compare your income and expenses for a few months. This will give you a good idea of how much you bring in each month and how much you spend.
A good budget is both truthful and realistic. The goal of a successful budget is to have more money coming in than going out. This is also known as having income that exceeds your expenses.
Use FCAA’s Debt Freedom Tool to evaluate your budget for free. The tool will also provide a recommendation for debt relief that fits your situation and direct you to a non-profit credit counselor who can help.
3. Get help from a professional credit counselor
If your expenses exceed your income month after month, then your budget needs a tune-up. Non-profit credit counseling agencies help people in situations just like yours. They have tools to help you develop a realistic budget to fit your fixed income, cut back on expenses and pay off debt.
Credit counseling agencies and their certified counselors can provide debt help tailored for people who have debt in retirement. They can help you make a budget that works, build an effective debt repayment plan, and restore your financial peace of mind. They can often work with your lenders to reduce interest rates, too.
4. Watch out for scams and check your credit report every year
There are countless financial scams targeting older adults. Educate yourself on current scams and follow these scam-safe tips:
- Never give out personal identifiable information or financial information over the phone to someone you have not personally called. Personal identifiable information includes your name, address, family information (names or addresses), pets’ names, social security number, credit card number, bank or other information.
- Verify situations before sending money to anyone, even a loved one.
- Never pay a bill with gift cards.
- Don’t always trust your caller ID. Some scammers change the ID phone line to a credit card company name, law enforcement name or other name. Hang up and call the company or person back to verify the situation.
- Check your credit report for free every year! This website allows you to check your report for free each year.
Regain control of your financial future
Seniors in debt can regain control of their finances by using these smart strategies. If these steps seem hard or confusing, don’t hesitate to get help!
The purpose of non-profit credit counseling agencies is to offer trusted financial advice to people in debt. The resources, support and hope they can provide will empower you to take control of your financial future and achieve a debt-free retirement.