These days baby boomers are either preparing to retire or they’ve already retired. Either way, their golden years are just around the corner, so it’s time to take one final look at their financial situations.
But are individuals born between 1946 and 1964 truly ready to settle down? Some reports say that they aren’t and that, in fact, some households might want to stay in the workforce for longer for a variety of reasons. Some might need additional time to save money up for a comfortable retirement, others might have chosen to wait until they reach their full retirement age in order to avoid receiving reduced Social Security benefits.
However, some baby boomers may have even bigger issues on their hands. Today we’re talking about debt and how it affects soon to be retirees. What are the biggest sources of baby boomer debt and what can be done to fix this growing issues?
10. A Loan From Family and Friends
Only 1% of baby boomer households have this type of debt to worry about before and even during retirement.
Some view this as the safest, easiest type of loan. If you’re in a pinch why go through a huge financial institution that will slap an interest rate right on top? Asking family members or friends instead sounds like a good idea.
Sadly, this is not always the case. As it turns out, this sort of move could easily destroy relationships, no matter how close you were prior to the loan. If you want to avoid getting into big arguments over money then it’s recommended to create a promissory note and go through formal motions instead of just shaking on it!
9. Payday Loan
Sadly, 2% of baby boomer households have gone for one of the most expensive ways to borrow money out there. Payday loans typically have an ARP of 400%, so it’s not even surprising that a lot of people struggle to stay on top of their debts day by day.
Virtually every financial advisor under the sun will tell you it’s better to avoid payday loans altogether, no matter how desperate your situation might be. If not, you’ll be left carrying that massive debt for way, way longer than necessary.
8. Tax Debt
Another 5% of baby boomers are struggling with tax debts and it’s important to try and settle them as quickly as possible in order for them to not impact your retirement.
For example, you could go through an offer in compromise, also known as an OIC, which will allow you to settle for less than the full amount owed. Alternatively, you could set up an installment plan with the IRS.
If neither of these options works for you or if you’re still having difficulties, contacting a certified public accountant might be your best bet.
7. Home Equity Loan
Did you know that compare to Gen X, baby boomers are more likely to rely on home equity loans (in addition to other types of bank loans) if their finances are negatively impacted.
This, of course, means that baby boomers are also likely to get into this type of debt because of the Coronavirus pandemic. So far, though, we know that only 6% of them worry about home equity loan debts.
6. Student Loan
It might sound crazy, but 9% of baby boomer households have student loan debts. The worst part is that these debts are increasing. Experian found that between 2018 and 2019, those in their 50s saw a 5.6% rise, while those in their 60s saw a 4.5% rise.
Equally concerning is the fact that in 2019 there have been 17% more student loan borrowers over the age of 62 compared to 2018.
4. Medical Debt (Tie)
We all know medical bills can skyrocket, even for the mildest of medical issues. That’s why it’s so important for everyone, seniors included, to take care of their health so that they don’t get slapped with bank-breaking costs. Of course, for most people, these things are unavoidable.
Did you know that medical debt is actually one of the most common reasons behind the rising numbers of bankruptcy filings among seniors? 10% of baby boomer households shoulder this sort of debt.
4. Personal Loan (Tie)
Another 10% of senior households are currently tackling personal loan debts, tied with medical debts.
It appears that baby boomers hold the highest average personal loan balance when compared to other generations, according to a study conducted by Experian. That means that their loans are 18% higher than the national average.
On the other hand, reports also show that the amount of debt carried by baby boomers has been declining steadily over the years.
3. Car Loan
34% of baby boomer households have car loan debts, translating to a shocking one-third of all baby boomer households.
One of the best and fastest ways to deal with such a debt is to refinance your car loan. This will also help improve your cash flow while reducing your interest rate.
The second highest worrisome debt that baby boomers have to get rid of ASAP comes in the form of mortgages. Shockingly, 40% of baby boomer households have this type of loan to deal with- hopefully sooner rather than later.
Perhaps even more surprisingly, 25% of them plan on paying off their mortgage during retirement, which could severely impact the amoutn of spending money they can use on a monthly basis.
1. Credit Card Debt
When it comes to people born between 1946 and 1964, credit card debt is the most common type of debt, barely scraping by mortgages with 2%. As such, 42% of senior households still have credit card debts to worry over.
But is that truly surprising? With more than $1 trillion on all credit cards as of the first quarter of 2020, it’s not that much of a shocker to find that even baby boomers are having a hard time with this type of financing.
Through tackling this type of debt might seem daunting, it’s not impossible. Here are some of the best strategies to handle your credit card debt before you retire!