When it comes to financial security, Baby Boomers are somewhat of a mystery. On the one hand, we are often called “The richest generation of all time.” On the other hand, even after decades in the workforce, we still carry the second highest level of debt of any generation ($95,095 per person), second only to Gen X ($134,323.)
To make matters worse, unlike members of the Millennial and Gen X generations, we don’t have long to correct the situation before retirement hits us like a ton of bricks.
Simply put, if we want to get the most from retirement, we need to get series about paying our debt off fast.
I Paid Off $150,000 in Debt in 10-Years… and You Can Too!
So, what makes
me qualified to tell my fellow Baby Boomers how to pay off debt fast in the years
leading up to retirement? I’m not a financial expert. I don’t have a bunch of
3-letter acronyms in front of my name. And, therefore, nothing in this article
should be considered financial advice.
On the other hand, unlike many of the talking heads that you see on TV, I have actually paid off $150,000 in debt. I refused to declare bankruptcy and took the hard steps necessary to rebuild my financial life. I also started several successful businesses in my 60s.
So, first, I’ll share why your 50s and 60s may actually be the easiest time to pay down your debt. Then, I’ll talk walk through the exact steps that I used to pay off my own mountain of debt.
It wasn’t easy, but, I hope that I can make your path a bit smoother than mine was.
Still Deeply in Debt in Your 50s or 60s? Don’t Panic… You
Have a Lot on Your Side
Many of us are surprised to find that we still have debt by the time we reach our 50s and 60s. And, it’s not just credit card debt that haunts us.
According to the Guardian life insurance company, student debt among Baby Boomers grew 72% over the last 5 years. That’s more than any other generation due, in part, to our willingness to co-sign on our children (and grandchildren’s) loans.
There is one
silver lining to being in debt in your 50s and 60s, however. For several
reasons, this may actually be the easiest time in your life to pay down debt. Here
are a few reasons.
First, our 50s and 60s tend to be our peak earning years. And, with our kids (for the most part) out of the house, many of us have more cash left over at the end of the month than at other times in our lives.
Whether to put this money into our retirement accounts depends on many factors – such as the expected return of our investments vs the interest rate that we are paying to service our debt.
But, the main point here remains. Now is a great time to pay off your debt.
Second, as an
older adult, you actually have more leverage than at other points of your life
when it comes to negotiating your debt. Why? Because, the banks know that once
you reach retirement age and have to start living on a fixed income their
chances of getting their money back decrease significantly. Getting less now,
may be better than risking getting nothing tomorrow.
So, if you are
ready to deal with your debt in your 50s or 60s, stay positive! You are in a
stronger position than you think!
Here’s the
approach that I used to pay off my debt.
Step 1: Just the Facts Ma’am
The most
important (and hardest) step in paying off your debt simply involved gathering
all of the necessary data. Why is this so hard? Because, writing down how much
you owe will force you to face your problems head on.
Trust me when
I say that I know how hard it is to be honest with yourself about your
financial situation. I ignored my own debts for years… and ended up paying $1,000s
more than I should have.
For as long as you are just blindly paying the monthly minimums on your credit cards and other sources of debt, you can pretend that everything is ok.
Don’t allow the little pain-avoiding magician in your head to say, “Pay no attention to the man behind the curtain!” Take control today.
There are
plenty of fancy tools (some free and some paid) that can help you to organize
and track your debts – Undebt.it, Unbury.me and Mint spring to mind. But, the truth
is that, unless your situation is especially complicated, you can usually
create a plan in Excel… or even on a good old fashioned piece of paper.
Before you
call your lenders, create a table like the following to keep track of the
amounts that you owe, the APR (interest rate) and minimum monthly payment:
Then, when you
are ready, it’s time to get on the phone with your banks, credit card companies
and other lenders. Ask them how much you owe, the APR and the monthly minimum.
It’s that simple.
Step 2: Choose a Plan: Snowball of Avalanche
Once you have
a good understanding of how much you owe and to whom, it’s time to pick a strategy
to start paying off your debt. And, at the end of the day, there are two main
approaches to choose from – the “Snowball” and the “Avalanche.”
With the “Snowball”
strategy, you would choose to pay off the debt source with the lowest total
amount due first. The goal here is to start creating psychological momentum… to
get some “wins” so that you are motivated to keep going with your debt-reduction
plan.
With the “Avalanche”
strategy, you would choose to pay down the debt source with the highest APR
first. The goal here is to focus on the highest-interest debt source in order
to free up cash as quickly as possible to further reduce your debt.
For example,
let’s assume that you had the following debt profile:
With the “Snowball”
approach, you would start paying down the loan from ABC Bank first since the
amount owed ($2,000) is less than the other two debt sources. Note that the
interest rate for ABC Bank (7%) is less than that of XYZ Credit Card (14%)
With the “Avalanche”
approach, you would start paying down the loan from XYZ Credit Card first since
the interest rate (14%) is higher than the next highest with ABC Bank (7%).
There are
benefits and costs to both approaches and, since everyone’s situation is
different, it makes sense to discuss which strategy is best for you with a
financial advisor. But, at the end of the day, both approaches can work, if
followed closely.
Step 3: Negotiate Your Way to a Debt Free Live
What follows is definitely not financial advice. These techniques worked for me, but, this doesn’t mean that they are appropriate for your situation. That said, here’s are a few of the strategies that I used.
Offering a
Lump Sum Payment
When I received a scary letter from a debt collection agency, my son stepped in to help. The amount that I owed was $8,000 and my son offered to loan me $5,000 towards the total. I decided that I would go a step further and simply offer the collection agency $5,000.
I was honest
with them. I told them that I simply couldn’t afford to pay back the full
amount, but, that a family member had offered to help. I asked them if they
would accept $5,000 to close the account completely… and, to my surprise, they
said yes.
Will this work
in all situations? Of course not. But, if you do end up with a little extra
cash, what’s the harm in asking?
Simply Asking for a Reduction (Especially for Credit Card Interest Rates)
As I wrote in
a previous article, the number one reason that people fail in a negotiation is
that they fail to negotiate. When you reach this step in the process, I highly
encourage you to check out my article, “How
to Negotiate in Everyday Life So That You Save More and Retire Richer.”
Sometimes, all
it takes is the threat to pay off your balance with a new credit card that has
a lower interest rate to get your bank to change their tune.
Step 4: How to Stay Out of Debt (for Good!)
Once you have
a plan in place to pay off your loans, how do you stop your debt pile from
growing?
Well, if the main
source of your debt is credit cards, then the answer is simple… cut them up (or
freeze them if you need them for emergencies). But, you already knew that!
In my
experience, however, it’s not consumerism that gets older adults into (new)
debt. It’s the desire to help other people.
Once again, I’m
not judging. I have helped both of my sons when they fell on tough times. I
paid for my kids’ education. And, I still put money aside for my grandkids.
All I am
saying is that each and every one of us has the right to be financially free.
Just like the emergency video on an airplane will tell you to “Put your own
mask on before helping others,” we need to apply this same approach to our
financial lives.
The key here
is to be honest with yourself and your family… honest about your debt triggers,
financial resources and goals for the future. Otherwise, you risk playing the role
of “grandma piggybank” until you have nothing more to give.
Don’t Give Up!
No matter were
you are on your financial journey, don’t give up! I am living proof that it is
possible to pay off almost any amount of debt… at any age!
The most
important thing is to take action. Don’t wait another day. You are strong! You can
do this!
Why do you
think so many older adults are still in debt? What advice would you give to the
other people in our community who are trying to get debt free? Let’s have a
conversation!
