By Bob Lowry
Our just completed vacation trip was expensive. Importantly, it was planned and budgeted for well ahead of time. We would not have pulled the RV out of the driveway if the trip was going to be funded with credit card or home equity debt. We would have stayed home if the money spent would mean serious cutbacks once we returned.
Retirement is not a time to be worried about excessive debt. Yet, recent studies show too many of us may be putting ourselves in that position. A story in USA Today last month showed some disturbing trends. According to the article the percentage of homeowners age 65 and older carrying mortgage debt grew from 21% in 2001 to 30% just ten years later. For those over 75, the rate almost tripled to 21%.
After the housing market collapse of 2007-2009 the increase in housing debt is particularly surprising. Seeing housing prices plummet or knowing so many folks are upside down on a mortgage, one would think extreme caution would be called for. Maybe some of the mortgage increase among older citizens is due to helping a struggling son or daughter by co-signing. Or, refinancing has resulted in a needed increase in monthly cash flow. But, regardless of the factors, being 65 or 75 or even 85 and carrying a mortgage has the potential for putting a satisfying retirement on shaky footing if major problems develop that require extra allocation of resources.
From my perspective, even scarier was the dramatic increase in credit card debt. The average balance for 65 to 74 year olds was $6,000 during the last full reporting period, or triple what it was ten years earlier. For those 75 and older the debt went from virtually zero to $4,600. With credit card interest usually in double digits that type of rolling average means hundreds of dollars in interest down the drain every year and a balance that is never paid off.
So, I have three questions for you. Please leave a comment that answers any or all of them. If you don’t choose to publicly answer, then I urge you to think about your situation and decide if you are comfortable.
1) Do you carry a mortgage? If so, does it ever worry you?
2) If you could pay off your mortgage would you, or are there tax advantages or other reasons why maintaining it makes sense in your situation?
3) Do you have a monthly credit card balance or do you pay off the bill in full each month?
All of our situations are unique and none of us can be in a position to fairly judge someone else’s decisions in this area. That being said, I believe it is helpful to not only look at your own situation with a critical eye, but get a sense of what others are doing.
Who knows, you might decide you could make a change – or are pleased with exactly how you are handing your debt. Being debt free in contemporary America is not easy, and some would argue, not wise. Using other people’s money is smart.
I am not comfortable with debt so I avoid it. What about you?
By Bob Lowry