It’s never too early to budget for the future, but many Americans don’t set aside enough money for retirement. A recent survey from GoBankingRates found that one third of adult Americans have no retirement savings at all. Even more troubling is the Employee Benefit Research Institute’s finding that in 2013 the average household headed by some 55 or older had over $73,000 in debt.
There are many reasons why people fail to save for the future. Many people today are living paycheck to paycheck and have no additional money for savings. All it takes is one illness or job loss to wreak havoc on a person’s finances for years.
If you’ve found yourself sitting on a very small nest egg and a big pile of debt in your golden years it’s time to take action to turn your financial situation around. Use the realistic approaches below to pay down large debts and relax a little easier in retirement.
Use a Reverse Mortgage
If you own your home you have a major asset that can be tapped into to pay off your monthly bills and outstanding debt. A reverse mortgage allows older homeowners to cash in on the equity of their home. Instead of making a monthly mortgage payment, the financier will give you distributions every month. However, the homeowner is still responsible for paying the home insurance and annual property taxes.
Seniors have to be very careful when they’re shopping around for a reverse mortgage service provider. Homeowners have to protect themselves against scams, which happen more often than many people realize. If you’d like to know more, this reverse mortgage guide can help explain the process in more detail.
Move in With Family . . . or Have Them Move in With You
Another option is to move in with a friend or family member. It’s the most drastic lifestyle change a person can make to pay off debt, but it’s also a huge money saver. Whether you rent or own, housing is one of the biggest expenses seniors have to cover. If a loved one is willing to let you stay at their place for a while it can free up a lot of funds for debt repayment.
You can also do the reverse. If you don’t want to move out of your home you can try to find a friend or family member who can live with you and cover a share of the expenses.
Today, people over 50 have larger credit card bills compared to younger individuals. Paying down a big debt can be extremely difficult on a fixed income. One of the best budgeting tricks is to prioritize your debts. Carefully analyze your monthly expenses and create a list noting the minimum payment, outstanding amount and interest rate for each debt.
Now it’s time to prioritize. Put the debt with the highest interest rate at the top of the priority list. The higher the interest rate is the more you will pay the longer it takes to get the debt paid off. Pay the minimum for all the other debts and allocate more money to the top debt. Once it’s paid off, move on to the next expense on the list.
Put Bills on Autopay
Many seniors aren’t internet savvy and don’t realize they can take advantage of autopay systems. Not only does it make bill management easier it can also save seniors money that can be used for debt repayment. If a payment is missed or late it can come with steep fees, increase your interest rate and hurt your credit score.
Ask each of your creditors and service providers if they offer an autopay plan. All you will have to provide is your bank account information and each month a designated amount will be paid on time.
Make Sure You’re Getting Full Benefits
Many seniors mistakenly don’t tap into all of the benefits they’re eligible for simply because they don’t realize they don’t realize the benefits exist. The National Council on Aging allows seniors to check their eligibility across all government programs that assist older people on fixed incomes. If you are eligible for benefits, the extra resources can be used for medications, healthcare costs and living expenses so more of your monthly income can go towards paying off debt.
Photo: Alan Cleaver
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