Baby boomers seem to be caught in a particular predicament. While they have relatively good credit scores, they are also burdened with considerable debt. If you find yourself in this situation and are nearing retirement, it is important that you take a close look at your finances before the going gets tough. Fortunately, minimizing debt might not be as hard as you imagine.
Where Things Stand
Data released by the Transamerica Center for Retirement Studies suggests that more than 30% baby boomers feel their confidence in being able to retire comfortably has dipped because of the COVID-19 crisis. It is safe to assume this is partially or significantly because of their outstanding debt. Consider these numbers released by Experian.
It is normal for boomers to feel pressurized in paying off their debts before reaching old age, all the more so if they have limited incomes or are counting on social security. The good news is that you can take remedial measures on your own.
How Can Boomers Reduce Debt Faster?
Debt can be rather easy to accumulate and just as difficult to pay off, especially if spending exceeds income. If you’re in a situation such as this, the first thing you need to do is put a break on unnecessary spending.
Repay Your Mortgage Completely
If you have a home mortgage, it is, in all likelihood, your biggest debt, so it makes sense to address it as early as possible. You should ideally be free of making mortgage payments by the time you retire. You may speed up the process by increasing your monthly repayment. Given the existing low interest rate scenario, you might benefit by refinancing. Downsizing to reduce financial burden also works well for some boomers.
Minimize Credit Card Debt
If you have a good credit score, chances are you receive multiple offers for preapproved credit cards. Refrain from using them at all, as they’ll add to your debt. Avoid using your cards to purchase things you don’t really need. If you have additional cards for your adult children linked to your primary cards, consider doing away with them. Using 0% APR balance transfer offers might prove to be beneficial if you have existing high interest cards.
Since credit cards tend to come with high interest rates, pay them off before other types of debt such as personal and auto loans. Boomers who have trouble making existing credit card payments could even benefit by thinking about debt settlement.
Reduce Medical Debt
Data released by Lending Tree suggests that while close to 50% baby boomers have been in debt because of medical bills at some stage, 23% are in debt owing to this reason currently. Boomers have to pay particular attention to this aspect because medical expenses tend to increase with age. Besides, changes in health insurance regulations may affect how much you pay as out-of-pocket expenses.
Compare your health insurance alternatives well and create a separate corpus for health-related expenses. If you have existing medical debt, contact your healthcare provider and ask for a discount or try to negotiate a payment plan after explaining your situation.
No matter whether you’re repaying credit card debt, a mortgage, a personal loan, medical debt, or tax debt, you may hasten the process by following a well-defined strategy. This includes monitoring your spending as well as repaying loans with the highest interest first. If you feel you need help with debt settlement or think you might be facing bankruptcy down the line, it’s best to contact an attorney at the earliest.