Tips to Help Seniors Stay Out of Debt
Unfortunately, more and more seniors are finding themselves facing debt problems. In some cases, people find themselves entering retirement without enough savings. In the past, most people used to get strong pensions from their employer when they retired, but retirement support like this is no longer as common. If your pension doesn’t cover your expenses and you do not have much saved, you may find yourself going into debt to make ends meet.
Another reason why many seniors end up in debt trouble is that they want to help their children and grandchildren. The costs of education, housing, child care, and many other expenses are often difficult for families to afford, and many seniors want to help with these costs. Unfortunately, this sort of generosity sometimes results in financial troubles for seniors.
A study released by Statistics Canada in 2019 found that, between 1999 and 2016, the median debt-to-income ratio in households where the main income earner is aged 65 or up has more than doubled. The study also found that the median amount of debt was $25,000 in 2016, up from $9,000 in 1999 (expressed in 2016 constant dollars). These statistics show how debt is becoming a big problem for many seniors.
How Seniors Can Avoid Debt Trouble
There are many ways that seniors can avoid debt trouble, including:
Focusing on paying down current debt
- If you currently have debts, paying them off should be your focus. Debt payments that take up a large portion of your income are a drain on your finances. While it will be difficult in the short term to dedicate so much of your income toward your debt, it will pay off in the long term. Once you are debt free, you’ll be able to live without worry and without sending a lot of your money to creditors each month.
- Paying off credit card debt should be your first priority. Credit card debt often comes with very high interest rates. The longer you take to pay this debt, the more you’ll owe.
- Look at your debts and rank them based on how much they’re costing you. Then come up with a plan that sees you eliminate the costliest debts first. This will save you money overall and improve your financial situation.
- When it comes to credit card debt, don’t make any purchases with credit unless you have a plan for paying them off. Try to pay your credit card in full in each month to avoid interest charges and, if you can’t pay off the full amount, at least pay more than the minimum.
- Seniors who are still in the workforce should put serious focus on debt repayment. If you’re still earning employment income, you’ll have more money available to pay off your debt. This will hopefully allow you to enter retirement with as little debt as possible.
- You’ll also need to make sure you know when you need to make debt payments and ensure you don’t miss any due dates. Missing a payment will likely mean penalties and higher interest charges, so make sure you pay your bills when they’re due.
- To avoid debt (or to pay down debt you already have), you’ll need a budget. Having a budget helps you avoid overspending and keeps you living within your means.
- Most seniors find themselves living on fixed incomes and earning less than they did while they were working. This means you’ll need to modify your budget to match your current financial circumstances.
- Figure out exactly how much you earn from various sources (your retirement savings, government benefits, employer pensions, etc.). Only list money that you can count on every month.
- Once you know how much you earn, come up with a plan for how you will spend less money than you have coming in. If you write down all of your expenses and realize you’re spending more than you should, you’ll need to look for places to cut.
Talk to your creditors
- In some cases, you may be able to contact your creditors and let them know that you want to pay off your debt, but your current financial circumstances are making it difficult. Depending on your situation and your history with the creditor, they may be willing to reduce your interest rate to make it more affordable.