Over the last few decades, there has been a shift in how people save for retirement and how they deal with debt as they enter retirement. To paint a broad picture, less people are able to rely on a pension, and 401(k)s are much more prevalent. As time goes on and we are able to gather more data about the impact this societal pivot has had, it is becoming clear that one of the prevailing outcomes for many retired people is mounting debt.

According to the National Council on Aging, 80% of households with older adults are financially struggling today or are at risk of falling into economic insecurity as they age. Their latest analysis from 2023 also revealed that most older Americans lack the resources to weather a “financial shock” such as a significant long-term care need, health issue, or loss of income due to divorce or widowhood. More alarmingly, the council also discovered that 45% of people 60 and older had household incomes below the Elder Index value for where they live, meaning their average income was below what they needed to afford basic living needs. 

Reasons for Such a Bleak Economic Forecast

In addition to the shrinkage of reliable pensions, older Americans have had to weather inflation, a steadily rising cost of living with stagnant pay rates, and skyrocketing healthcare costs. For example, Medicare doesn’t cover many services commonly needed by older adults, such as hearing aids, certain prescription medications, and long-term care. Retirees are also living longer, which means they often need more savings to fund their retirement than they might have planned for. 

As a result, many older Americans are forced to lean on credit cards and carry increasing balances just to afford essential items. 

Where There’s a Will, There’s a Way

Managing debts on a fixed income is challenging, to say the least, but there are methods and resources available to help older Americans tackle debt and create stronger financial habits: 

  • BenefitsCheckUp is a free tool offered by the National Council on Aging to help people struggling with debt locate financial assistance programs suited to their needs. You merely enter your zip code, and the website will pull up benefits programs that can help pay for health care, medicine, food, utilities, and more. The site will help you determine whether you’re eligible, as well as help you find out where to apply online, or even get help from a benefits counselor.
  • Consider Downsizing. Downsizing could make a huge difference in eliminating your debt after retirement. The mortgage is often the biggest monthly bill for many, so if you can sell your home and move to a less expensive one you could reduce monthly payments — both on the mortgage and other bills such as utilities and lawn care. (This is, of course, dependent on the housing market and prevailing interest rates, but you can make it work.)
  • Set New Financial Priorities. If what you’re currently doing to reduce debt isn’t working, it’s time to try something new. 
    • The personal finance guru Dave Ramsey popularized something called the snowball method: Pay off your smallest balance first; then move on to paying off your next smallest balance and so on and so forth. This method is great for people who need motivation and a hint of instant gratification. It lets you start small and then build momentum, tackling bigger debts as you go. 
    • Alternatively, you could do the opposite, something called the avalanche strategy: Work on paying down your debt by focusing on whatever loan or credit card has the highest interest rate.
    • Free Debt Management Apps can help you look at managing your money a bit differently. For example, Debt Payoff Planner has you enter your debts, put in your monthly payment budget and then see how long it will take to be debt-free. Debt Manager lets you make a list of your debts and prioritize them; once you pay one off the app automatically transfers the amount you’ve been paying to the next one in line. 
  • Consider Debt Consolidation. Debt consolidation could be really helpful if you have many debts with high interest rates, because combining them can simplify the payment process and make it easier to track your progress. Since it can be tricky to pick the best strategy here, it would be wise to work with a financial expert before making any changes. 
    • One way to consolidate debt is to use a single personal loan to consolidate several credit card balances that have steep rates. Typically, the rate on a new loan is  largely based on your credit score, but some lenders offer discounted rates to applicants who have accumulated retirement savings. 
    • You could also consolidate credit card debt by transferring your balances to a balance transfer card. This kind of card usually offers a promotional rate, such as 0%, for a year to 15 months, so the goal would be to pay off as much of the debt as possible during that time. Accordingly, be aware that after the promotional rate expires the new higher rate and balance transfer fees could cancel out any overall savings.

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