3 Ways Baby Boomers Are Getting Out of Debt Faster

Stacked cubes with letters forming "Get Out of Debt" for baby boomers' techniques to get out of debt fast.

Many news stories about debt revolve around the millennial generation. Debt troubles aren’t restricted to one generation, though, and as Baby Boomers enter retirement age, many of them worry how they’ll finance their “golden years.” If you’re hoping to retire debt-free, make a plan to tackle these common sources of Baby Boomer debt.

Control Credit Card Debt

Paying with credit, or plastic as it's commonly referred to, can come with sizable unforeseen costs. Experian’s State of Credit 2016 report states that while Boomers have higher average credit scores than Millennials, they also carry higher average debt and almost double the average credit card balance. Build an action plan to reduce your credit card debt:

  1. Toss the junk mail. Because Boomers’ credit scores tend to be higher, you may find yourself approved for more cards. Shred preapproved credit come-ons unopened to resist the urge to sign up for more credit (and more chances to incur debt) than you need. You can also “opt out” of these pre-screen credit card offers by calling (888) 5OPTOUT or visiting www.optoutprescreen.com.
  2. Cut financial ties with your adult children. About 40% of people in their early 20s get financial help from their parents, to the tune of $3,000 per year on average. If this sounds like your family, meet with your kids to discuss ways to scale back how much you spend supporting them. Put the difference toward paying off your debt.
  3. Pay off cards first, before other debt. Credit cards’ high interest rate can spiral into a big problem quickly. Missing or late payments could adversely impact your credit score, making it harder to meet other financial goals. Talk with a financial coach to determine which financial areas need your main attention, but expect credit to be near the top of the list.

Minimize Medical Debt

One in five Americans between the ages of 51 and 64 had unpaid medical bills in 2015. Reports from the Centers for Medicare & Medicaid Services found that people in the 45-64 age bracket spent the most on personal healthcare between 2002 and 2012, and had the second-highest rate of annual growth of spending. The reality is that approaching retirement age often comes with an increase in healthcare spending, and changing laws regarding health insurance can affect your out-of-pocket costs.

  1. Research health insurance options. An excellent health insurance policy can be one of your biggest defenses against debt or even bankruptcy in retirement. Even a relatively simple medical procedure can come with steep bills, and an uninsured hospital stay can spell financial ruin for many families. Protecting your health and finances with insurance is essential.
  2. Build health expenses into your retirement budget. Once you know your annual deductible, factor some or all of it into your budget so a medical bill doesn’t knock you off your feet.
  3. Negotiate with healthcare providers. Already have medical debt? Ask to talk to their financial team. Hospitals may be more willing than you’d think to negotiate payment plans or even discount part of a bill you’re struggling to pay. Start by going through an itemized bill, comparing costs with a healthcare cost estimator like Healthcare Bluebook. If you spot a high charge, you may be able to talk down the price.

Pay Off Your Mortgage

Minimizing the number of fixed payments on your plate before retirement will help you keep from going through savings too fast (especially if your savings suffered due to the 2008-2009 stock market decline). Ideally, you should own your home outright before retirement. Baby Boomers are lagging behind previous generations’ rates of homeownership, but Fannie Mae predicts that numbers will improve in coming years. These strategies may help you reach your last mortgage payment sooner:

  1. Break big goals into small steps. Budgeting 1/12 of an extra mortgage payment each month may feel more manageable, and easier to fit into your daily habits, than coming up with a lump sum at the end of the year.
  2. Roll other debt payments toward the mortgage. Depending on your circumstances, an aggressive repayment plan for credit card or auto loan debt may make more sense than concentrating on the mortgage. After you pay off these debts, redirect the same payment amount toward mortgage instead of putting it back into your discretionary budget.
  3. Think twice before refinancing. A 15-year mortgage puts you on the hook for less interest payments than a 30-year mortgage, but your monthly payment will be much higher. Building home equity faster doesn’t make sense if you can’t make ends meet. Instead, make sure your 30-year mortgage lets you put additional payments toward principal whenever you want. That way, you can set your own budget to make payments at a 15-year rate, without sacrificing the flexibility to scale back during a leaner month.
  4. Consider downsizing. Depending on the housing market in your area, the amount of mortgage left to pay off, and your lifestyle, you may want to consider moving into a smaller home you can afford more easily. Empty-nesters in particular should take time to assess whether the family home is now bigger than what they want or need for post-retirement life.

Planning financially for retirement is a complex process. Collecting the best information you can on your assets and making a plan to pay off outstanding debts can help you and financial professionals work out the best plan for a secure retirement.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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