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Americans are running up their credit cards again, with card debt reaching worrisome levels not seen since the 2008 financial crisis and hitting a new peak as of Dec. 31, 2018, according to the Federal Reserve Bank of New York.
This is troubling for older Americans because people age 60 and older owe roughly 30 percent of the cumulative credit card debt nationally. In raw numbers, their card balances totaled approximately $260 billion, or nearly a third of the $870 billion in credit card debt shared by all Americans
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Credit card debt can be problematic at any stage of life, but is likely to be of more concern for those considering retirement, if they are not already retired, experts say.
It’s “a recipe for disaster long term,” says Maria Bruno, head of U.S. wealth planning research for the Vanguard Group Inc.
For example, minimum payments of $500 a month can easily eat into expendable income in retirement, and into savings for those nearing retirement.
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“Without that debt, you can have a better lifestyle,” said certified financial planner Linda L. Jacob, a financial counselor with Consumer Credit of Des Moines, in Iowa. “Get rid of that stress of having debt.”
Both saving for retirement and paying down debt are important. “It’s this balance between the decision to retire and paying down debt,” Bruno says. “It’s a balance between goals.”
Here are six tips experts give to help pay down or pay off credit card balance.
- Pay the credit card with the highest annual percentage rate (APR) first, because the interest on that card costs the most.
- Alternatively, pay off a card with the smallest balance first to get the satisfaction of having paid something in full, as long as it doesn’t delay you from attacking cards with much higher balances. “For some, seeing the smallest balance disappear” creates motivation to stick with the debt repayment plan, says Todd Christensen, education manager at Money Fit by DRS, in Boise, Idaho.
- Evaluate how to allocate your dollars. If your employer matches your contributions to a 401(k) or other retirement plan, it can make sense to keep contributing while still paying down or consolidating high-interest credit cards.
- Postpone retirement a year or two so you can pay off your debt before you retire.
- If you are deep in debt at high interest rates, consider a consolidation program with a lower rate to get control over your debt, such as consolidation programs offered by Money Fit. Similarly, Consumer Credit of Des Moines offers debt management programs to help you save on interest charges.
- Try not to take on any additional debt.