Managing Debt As You Near Retirement

To help us understand what people in their 50s and 60s can do to control and repay debts, Gary Foreman of TheDollarStretcher.com spoke with Leslie Tayne. Ms. Tayne is an attorney specializing in debt issues and writes frequently on the subject. She's recently authored Life & Debt - a fresh approach to achieving financial wellness.

Q: Are there many people nearing retirement that are still in debt?

Ms. Tayne: Many people are nearing what is considered retirement age but are not retiring because of debt or the amount of expenses they currently still live with on a day-to-day basis.

Q: Why is it important to manage debt as you near retirement?

Ms. Tayne: It's super important because it is likely that once you retire, your income is going to go down from where it is now and then stay the same, meaning you likely won't have increasing income. It will be a fixed amount, and therefore eliminating as many expenses (especially debt payments) as possible will be a huge benefit and relief.

Q: If someone struggled to get out of debt unsuccessfully for years, how can they change and be successful now?

Ms. Tayne: The best advice I can give is to change your ways financially by using a debit card or cash instead of credit, work on a budget, and just say no to unnecessary purchases. You need to look at the root of the problem in order to make a good financial change.

Q: Are all debts equally troublesome? Or are some more dangerous than others?

Ms. Tayne: Some debts are more problematic, especially the ones you can't pay! I say this because some you can pay comfortably and some you can't. When you can't pay a debt, most people seem to hope it'll work it out either by paying it for a long period of time or transferring it around with a lower interest loan or a balance transfer. However, this debt will most likely become a problem.

Q: Should you use retirement savings (like 401k and IRA's) to pay off debts before retirement?

Ms. Tayne: I am not a fan of this and usually steer clients away from using hard-earned retirement money to pay off debts. It usually causes more issues than it resolves since you are depleting savings that you can't make up because of time left working and you could end up with a tax-related debt from taking it out early. Also, you don't solve the underlying issue of cash flow and now have left yourself with nothing to fall back in case of an emergency.

Q: Are there any tools or techniques that are available to reduce debt at this stage of life that aren't available otherwise?

Ms. Tayne: There are so many. Don't be afraid of a computer and programs to help budget. I also suggest you seek out professionals who specialize in managing debts, not just managing money and investments. Talk it out with family and significant others and be on the same page about financial habits and goals. Stop spending and look to reduce non-necessities. I am not preaching to cut your lifestyle in half, but to take a look at it and see what's most important for the next years or stage of your life.

If you're over 50 your financial needs are different. And so are your questions. You'll find information geared specifically for Baby Boomers on The Dollar Stretcher section dedicated to their financial issues.

My thanks to Gary for allowing us to share this article. I also recommend the Retirement Calculator from Bankrate.com to determine how much you will need to save before retirement so you can live comfortably within your means when you do retire. And head to Stretcher.com for a number of additional financial tools and calculators to get you ready for retirement.