It’s one year till retirement, and the clock is ticking. Sure, you knew better than to pay for junior’s $30,000-a-year college tuition, but you did it anyway because he’s a good kid, and, as parents, we want to give them a head start, right?
Now, the looming mortgage balance and the credit card debt (that vacation to Italy was nice) have your financial future in flux. “It’s not that you failed,” says Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C. “But you had a good time when you were working, and the money that you should have saved you didn’t.”
Well, you’re not alone. According to a study by the Employee Benefit Research Institute, 65.4% of American families with heads of household 55 and older held debt in 2013.
The good news? It’s not too late — no matter what your age — to pay off debt. Here are three bills to tackle, along with expert advice on how to get it done.
• Unsecured debt. “Get rid of any lines of credit or revolving credit cards because they reassess every month,” says Johnson. If you have $10,000 on a credit card with 12% interest, for example, it’s going to take more than nine years to pay it off if you're only making $150 payments, according to Credit Karma's calculator, and you'd pay almost $6,600 in interest.
In addition, look at your highest-interest debt and consolidate. “If you transfer a balance from a high-interest-rate credit card, some companies offer zero percent interest for 12 months on the transfer,” says Delvin Joyce, managing director at Prudential Financial in West Palm Beach, Fla. “Eliminating debt means you have to make sacrifices, so sit down, go through your budget and figure out where you can trim the fat.”
• Student loan debt. “Keep in mind that your child can finance their education, but you cannot finance your retirement,” says Tracy East, director of communication and outreach at Consumer Education Services in Raleigh, N.C. While experts don’t advise that you stop saving for your future, if you’ve taken on the responsibility of paying for your child’s education, start repaying loans as soon as they come due, make more than the minimum payment, and as soon as your child gets a job after graduation, have them contribute a certain amount each month to paying down the debt. Also, encourage them to raise their grades to become eligible for scholarships, take only the classes they need to graduate and consider saving for the first year to lessen the total amount of the loans. The bottom line: Don’t shoulder the burden if you cannot afford it.
• Mortgage debt. Nearly 33% of Americans' total expenditures in 2015 went toward housing, according to the U.S. Bureau of Labor Statistics. One way to shave down your mortgage is to apply extra money toward the principal. But not so fast, say some financial planners. “I consider a mortgage ‘good debt,’” says Joyce. “If you’re a retiree, or soon to be, your kids are likely out of the home, so your home may be one of your only tax shelters.” He advises clients to take advantage of this low interest-rate environment to refinance their mortgage to pay lower rates, save more in interest, and get a higher return on their biggest investment, their homes.
If you're close to retirement and you're having trouble digging out of debt, you may have to bite the bullet and work longer than you had planned. “Every year you work, that is one less year you will have to fund in retirement and another year to accumulate savings,” says Lori A. Trawinski, a certified financial planner and a director at the AARP Public Policy Institute. And if you've already retired, think about going back to work. Become an Uber driver, teach an online course or go to work at your favorite retailer for a couple of years and funnel every dime toward your debt.
If you still need to raise cash, leverage your assets. “The money you pay into a life insurance policy grows tax-deferred, so when you borrow from it, it is not considered a taxable event. You don’t pay on the taxes until you pass away,” explains Johnson. But if you cash out any money from your 401(k), the plan’s administrator will automatically withhold 20% of your withdrawal for taxes and you will be subject to a 10% early withdrawal fee if you are younger than 59½.
“A lot of Americans take the head-in-the-sand approach to managing debt,” says Joyce. “If you sit down with a financial adviser who can help you chart a path, you can eliminate the debt responsibly.”
Tanisha A. Sykes is a writer and editor who specializes in personal finance, career development and small business. Follow her on Twitter @tanishastips.