Managing Debt Wisely in Your Retirement Years

Source: Chicago Tribune

The holidays, the hangovers and, for many, the resolutions are over..

What’s left, of course, are the extra pounds and the credit card bills.

Skipping a few restaurant meals this month can help with both problems, but for many retirees that isn’t going to be enough.

“People are dipping their big toes back into credit again and showing a pent-up desire to spend,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

Credit card and other debt get in the way of retirement saving for pre-retirees, but can really sink an income plan for retirees on a fixed income.

And experts say older consumers aren’t just spending on health care. As retirement stretches into decades of healthy living before true old age, seniors are buying more new vehicles and purchasing pricey home upgrades.

“We’re really good at deceiving ourselves,” Cunningham said. “Seniors often think they’re in pretty good shape for retirement, but this is not a time in life to fool yourself.”

Medicare costs, identity theft and just old-fashioned spending creep are tripping them up, she said.

So is housing debt. The percentage of people 65 to 85 with mortgages has increased by a third since the 1980s, according to Pamela Villarreal, senior fellow with the National Center for Policy Analysis.

Credit card debt among people 75 and older has soared since then, too, to an average balance of around $4,600, she said.

Getting a handle on debt in retirement means either altering spending or setting new expectations for family members who might have been expecting an inheritance.

Cunningham offered a few tips on the former.

Write it down. Keep a separate register for credit card purchases. Writing it down on a ledger has the psychological effect of making consumers more aware of how much money is going out the door, she said.

Manage Medicare. Medicare plans account for a big share of many retirees’ budgets, but often they miss out on better and cheaper options because they are overwhelmed by the complexity and don’t spend time really reviewing their plans, she said.

Test yourself. Are you regularly just paying the minimum due on credit cards? Are you arguing more about money with your spouse or hiding purchases? Do you frequently charge items you used to pay for in cash? Are you applying for new credit because your old cards are near their limit? Are you using cash advances to pay routine bills? If so, she said, you’re heading down a dark path, and it’s time to take action.

Stand guard. Identity theft and other scams can destroy seniors’ financial stability, so it’s important to keep an eye on your credit history even if you never expect to apply for a mortgage again. The websites and offer free reports.

Come to the table. At least annually, meet with your spouse or a loved one at the kitchen table and bring enough financial documents to be able to accurately discuss your current household net worth, assets and debt. If your partner continually refuses, Cunningham said, that’s a big red flag.