Older Americans face a big challenge: credit card debt. In 2010, the average person aged 75+ was carrying $4,600 in credit card debt, according to a report by the National Center for Policy Analysis. That may not seem like a lot to someone carrying a much higher amount of consumer debt, but it’s a huge number for a demographic that is likely to be on fixed income and possibly unable to work.
It’s crucial to pay off all of your consumer debt before retirement. Better yet, you should pay it off as soon as possible. Here’s why:
1. Your future is unknown.
Even if you think you’ll never retire and you’ll continue to hustle well into your golden years, it may be more complicated than that. You may wrestle with illness and disability at some point in your life. This isn’t just for people with dangerous professions or unhealthy habits. There’s always a chance that something will happen that leaves you unable to work.
To be prepared, you should contribute to your retirement accounts, save for emergencies and pay off your consumer debt today. You don’t leave the workforce saddled with debt.
2. Credit card debt is expensive.
In general, credit card debt is the most expensive debt you can carry. With rates in the double digits and low minimum payments, it will take years to pay it off. Let’s take the average credit card debt of those 75+, $4,600, and assume an interest rate of 18% and a minimum payment of $92 per month. The debt will take you seven years and seven months to pay off and cost $3,698 in interest.
Of course, if you pay it off aggressively now, it will take less time and money. A monthly payment of $200 drops the payoff date to two years and four months, costing $980 in interest. That’s an insane amount of time and money saved for a monthly payment that isn’t much more than the minimum.
» MORE: How to pay off debt
3. Seniors may not have much income in retirement.
People aged 55-64 — which is the age bracket right before traditional retirement age — have nest eggs of $165,200, according to a study by Fidelity Investments. That’s a small sum to live on for the rest of your life. Of course, this is generally supplemented by Social Security, but many seniors will find themselves struggling to pay off bills on limited fixed incomes. Worse yet, they may be unable to work due to physical limitations.
When you’re on a limited income, you’ll want to eliminate as many monthly obligations as possible. For the sake of Future Retired You, don’t carry monthly credit card payments into old age.
4. Debt causes stress.
You’ve worked hard — probably for most of your life — and you want to relax a bit in retirement. Maybe this includes playing shuffleboard or maybe it includes running marathons, but the one thing it shouldn’t include is a high level of stress. A debt load you’ll seemingly never be able to pay off can keep you up at night worrying about how you’re going to pay your bills.
While paying off your consumer debt now can’t guarantee a stress-free retirement, it definitely can’t hurt.
Bottom line: Consumer debt and retirement don’t mix. Pay it off now before you retire to alleviate risk and stress, as well as spend less money on interest and save your limited income for the things you value.
Older couple image via Shutterstock