Many Baby Boomers enter retirement with thousands or even tens of thousands of dollars of debt to their name – and, as most of us see a considerable reduction in our income once we retire, many struggle to service and pay off that debt.
There are many different types of debt, each with different rates of interest and repayment conditions, which Boomers make use of.
Let’s explore some of the most common types of debt that Baby Boomers have…
Tax Debt
I’ve never met a person who loves to pay their taxes. Most of us understand the importance of paying taxes but when it comes down to actually paying, it’s always painful. But it’s a lack of planning that puts many boomers in a position where they can’t pay any or all of their tax bill and there lies the most common source of the problem.
Five percent of Boomer households in the US owe money to the IRS or a state tax agency, according to a recent survey. Tax debt essentially means a person is unable to meet their tax liability.
This type of debt can result in hefty late payment fees being incurred, so it’s very important to try to settle as soon as possible.
If you’re unable to immediately pay off the full outstanding balance, you should try to negotiate a tax relief deal to either reduce the amount you need to pay or to agree a manageable payment plan which will allow you to pay off your tax liability without incurring additional financial penalties.
Medical Bills
One in ten Boomer households owe money for treatment or other medical services. And, the worst thing about this kind of debt is the fact that our medical bills tend to increase as we age, so Boomers’ medical debt often grows increasingly large as they go deeper into retirement.
Car Debt
Just over one in three Baby Boomer households is financing their car. Automobile debt can be very expensive, but it can still work out to be more cost-effective than other options – like not having a care for example.
Boomers should consider how much they actually use their car and whether or not they might be better off selling it to repay the loan and put the remainder (if any) to better use.
Payday Loans
Thankfully, very few Boomers use payday loans, which are often the most expensive source of funding out there. Specifically, just two percent of Boomer households in the US have used payday loans.
Such loans should only be used if you have no other source of finance available to you (because of poor credit, for example) and need the money urgently. Also, if you decide to use payday loans, be sure to choose the shortest term possible, as the hefty interest charges can quickly rack up and leave you in a financial hole.
Mortgages
Taking out a mortgage is often a sensible thing to do from a financial perspective, as instead of just paying rent to a landlord, you’re working towards having full ownership of your home. So, it’s no surprise 40 percent of Boomers have a mortgage.
On the other hand, a reverse mortgage (sometimes referred to as an equity release loan) isn’t always a good idea – and just six percent of Boomer households have such debt to their name.
A Quick Summary
- Almost every single Boomer household in the US enters retirement with some level of debt.
- As our income usually falls once we retire, it becomes increasingly difficult to manage and pay off our debt.
- Some of the most common types of debt that Boomers hold include mortgages, outstanding medical bills and credit card debt.