Overwhelmed by out-of-pocket medical prices, Valerie Towe and her husband, Paul, noticed their debt load start to swell final yr.
Dealing with a gentle stream of payments for 77-year-old Paul’s persistent obstructive pulmonary illness, rheumatoid arthritis, and neuropathy, Valerie started to faucet bank cards to maintain up.
“I wasn’t capable of make ends meet,” Valerie, 65, informed Yahoo Finance.
The price of weekly groceries added to the pressure — almost doubling final yr, she mentioned. And to prime it off, as her caregiving duties ramped up, Valerie shifted to a part-time job.
“If you’re a caregiver, you may’t work a full-time job,” she mentioned.
The worst of it, as anybody who has rolled over bank card balances month to month is aware of, is the ballooning debt that accrues when you may solely pay the minimal quantity of the steadiness on bank cards which might be ladened with rates of interest topping 20%.
That’s all Valerie has been capable of do, and the result’s a gut-punching bank card debt nearing $30,000, she mentioned.
Practically half of adults 50 and older who carry bank card debt use bank cards to pay for primary residing bills, in accordance with a brand new AARP report. And roughly 3 in 10 older adults with bank card debt have extra of it than a yr in the past.
Extra sobering: Practically half of them owe $5,000 or extra, and 28% carry a steadiness of $10,000 or extra.
That has critical repercussions for retirement financial savings.
“Many older People with bank card debt who hope to retire quickly must make the troublesome determination of whether or not to pay down debt or save for retirement,” Indira Venkat, senior vp of analysis at AARP, informed Yahoo Finance. “For individuals who have already retired and live on a set earnings, it may be a problem to each pay down a bank card and make ends meet.”
Learn extra: Greatest methods to repay bank card debt
She’s proper on that one. When folks say what they remorse probably the most after they retire, a biggie is retiring with an excessive amount of debt.
In 2024, nearly 7 in 10 retirees with debt reported having bank card debt excellent, per a survey from the Worker Profit Analysis Institute (EBRI). That’s up from 4 in 10 4 years in the past.
And whereas the rising value of groceries, housing, and autos are the byproducts of sticky inflation, one of many greatest culprits of bank card debt is out-of-pocket medical prices akin to pharmaceuticals, which the Towes are grappling with. Dental and imaginative and prescient care add up too, Venkat mentioned.
If they may flip the clock again, almost 1 / 4 of retirees say they’d have made paying down bank card and different money owed a precedence earlier than they exited the workforce, in accordance with a brand new Constancy Investments report.
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The emergence of bank card debt for older People is just not fading away anytime quickly. Roughly 1 in 5 anticipate to take greater than 5 years to pay it off, per the AARP report.
The choice to pay down debt or save for retirement is a actuality for a lot of older People as they close to retirement. Greater than half of these at the moment working say that their debt is interfering with their capability to save lots of, a latest report by the Transamerica Middle for Retirement Research discovered.
Troubling, too, is that the debt has pushed them to faucet into present retirement financial savings. One in 3 employees has taken a mortgage, early withdrawal, or hardship withdrawal from their 401(ok) or comparable plan or IRA, per Transamerica.
Amongst those that have taken out a mortgage or withdrawn from their 401(ok) or comparable plan, probably the most steadily cited causes are medical payments and paying off bank card debt.
Extra proof: Final yr, hardship withdrawals elevated over 2023, with 4.8% of individuals tapping their retirement financial savings, up from 3.6%, in accordance with Vanguard Group, which administers 401(ok)-type accounts for almost 5 million folks.
If you withdraw from a conventional 401(ok) account, you get slapped with paying earnings tax, and usually a ten% penalty in case you’re youthful than 59 1⁄2.
Learn extra: What’s the retirement age for Social Safety, 401(ok), and IRA withdrawals?
This is a simple first step: Name your bank card issuer and ask for a decrease rate of interest, stating — if true — your historical past of on-time funds.
In case your supplier will not budge, store for a 0% steadiness switch card. You may shift your present high-cost bank card debt over to a brand new card with a 0% promotional price lasting so long as 21 months. There may be, nevertheless, a 3%-5% switch price of the overall quantity you switch, however that lengthy interest-free interval offers you some house to start to pay the steadiness down.
Automating your month-to-month funds and paying greater than the minimal is the ticket to whittling away at your money owed.
There are a couple of methods to think about for decreasing your general debt. The avalanche technique entails paying off debt with the best rate of interest first. Different folks go for the snowball technique, which focuses on smaller money owed first. I’m within the avalanche college, however no matter works finest for you issues.
Options additionally embody consolidating your whole bank card debt with a private mortgage. It’s doable to land an rate of interest as little as about 7% over seven years when you’ve got robust credit score, which regrettably is just not usually the case in case you’ve gathered an excessive amount of debt.
Have a query about retirement? Private funds? Something career-related? Click on right here to drop Kerry Hannon a notice.
When you have a number of balances throughout a number of playing cards and a steadiness switch card or private mortgage gained’t cowl the overall debt, I like to recommend tackling the best annual rate of interest first, whereas nonetheless making funds on the remaining to steadily decrease the curiosity expenses.
A nonprofit credit score counselor may additionally have the ability to negotiate together with your bank card issuers to provide you a break on charges, however you’ll pay a price for the service. The Justice Division web site offers a listing of authorized credit score counseling businesses.
Learn extra: Greatest steadiness switch bank cards of 2025
Different sources embody AARP’s bank card pay-off calculator and the Nationwide Basis for Credit score Counseling.
Simpler mentioned than performed, I do know. As Valerie informed me: “I am caught. I do not know what I’ll do… but. I am form of in limbo with it.”
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a profession and retirement strategist and the writer of 14 books, together with “In Management at 50+: The right way to Succeed within the New World of Work” and “By no means Too Outdated to Get Wealthy.” Comply with her on Bluesky.
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