It is not uncommon for seniors to retire with debt. In fact, according to a survey by that National Council on Aging, 60% of U.S. adults 65 and older are in debt.1 69% of the same group are retired.2 If you are facing debt in retirement, you are not alone.
When retiring with debt, it is important to have a clear picture of exactly how much debt you have and how you plan to manage your monthly expenses. A good place to start is by adding up all of your loans and credit card bills. Then check your interest rate for each one and calculate how much money you need each month to keep up with your payments. Next, set up a budget that shows how much you bring in each month, all of your expenses, and whether or not you will need to tap into your savings. Don’t forget to make a plan for emergencies and incidentals. If this feels overwhelming, a financial advisor or independent debt counselor could help you with this process. You can find a debt counselor approved by the Department of Housing and Urban Development (HUD) by visiting https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
After determining what your cash flow ins and outs are, there are several strategies you can use to help with managing debt in retirement. Some of these options include selling your home and downsizing, getting a part-time job, borrowing from family or friends, and/or getting a reverse mortgage.
Using a Reverse Mortgage to Consolidate Debt
The average amount of debt for a U.S. household with members aged 65-74 is $66,000.3 The primary source of this debt is a mortgage on a primary residence. If you are retired or plan to retire before paying off your home, you may be able to replace your conventional mortgage with a reverse mortgage.4
There are no monthly payments or other requirements to repay the reverse mortgage as long as you live in the home as your primary residence, continue to pay required property taxes and homeowner’s insurance and maintain the home according to Federal Housing Administration (FHA) requirements.5 Therefore, replacing your conventional mortgage with a reverse mortgage to eliminate your monthly mortgage payment could increase your cash flow and give you more financial flexibility. With the reverse mortgage, the cash from the available equity in your home can also be used to pay down other high-interest rate debt such as credit cards or personal loans.6
If the payments from your monthly mortgage payment or other debts are causing you financial stress, a reverse mortgage may help. To find out of this is an option for you call 1 (800) 976-6211 to speak with a licensed loan advisor.
1National Council on Aging. A profile of Seniors Households with Debt. https://www.ncoa.org/economic-security/money-management/debt/senior-debt-facts/?utm_source=email&utm_medium=newsletter&utm_campaign=NCOAWeek&utm_term=2016_02_16
2Where People Are Working Beyond 65. Forbes. https://www.forbes.com/sites/niallmccarthy/2017/12/08/where-people-are-working-beyond-65-infographic/#e4876aa36800
3Time Money. This Is How Much Debt the Average American Has Now – At Every Age http://time.com/money/5233033/average-debt-every-age/
4Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing.
5Failure to meet these requirements can trigger a loan default that may result in foreclosure.
6 The funds available to you may be restricted for the first 12 months after loan closing. In addition, you may be required to set aside additional funds from the loan proceeds to pay for taxes and insurance.”