Millions of adults age 60 and older are still struggling with this type of surprising debt – Motley's Fool

It is rare to find anyone who has no debt, be it a mortgage, a credit card debt, a car loan, and so on. – and older Americans are no exception. According to a survey conducted by the financial services company Nitro, more than 80% of baby boomers currently have a debt, and only 5% said they have never been in debt before.

However, although many people are in debt, it is not a shock that millions of older people suffer from a rather surprising kind of debt: student debt.

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According to a report from the Consumer Financial Protection Bureau, about 2.8 million American adults over the age of 60 have student debt, and this number is steadily increasing. Since 2005, the number of seniors on student loans has quadrupled and the average amount owed has increased from $ 12,000 to $ 23,000 over this period.

These numbers do not necessarily mean that millions of seniors have begun to return to school. The researchers found that nearly three – quarters of adults over age 60 who have borrowed a student loan reported borrowing money for their children 's education. Nevertheless, debt is a debt and, for many older student loan borrowers, the additional financial burden is causing hardship – 39% said they no longer need health care, such as prescription drugs and visits to the doctor, to be able to pay their student loans.

Sometimes, certain types of debt may be unavoidable. But debt in any form whatsoever should not reduce your chances of enjoying a comfortable retirement. If you are approaching the age of retirement and falling asleep in debt, here is what you can do:

1. Start by paying off the high interest rate debt

If you are struggling with different types of debt, look at the interest rates of each type and start by focusing on higher debt first (while still making the minimum payments required for other types).

A high interest rate debt can be extremely toxic to your finances, and if you only pay the minimum payment, it can take years – and cost thousands of dollars in interest. For example, suppose you have a credit card debt of $ 5,000 with a 16% APR. If you make a minimum payment of $ 100 a month, the repayment of that debt will take about seven years and you will have to pay about $ 3,300 in interest.

However, if you increase your monthly payment by only $ 50 a month, you could pay off your debt in less than 4 years and halve the total payment of your interest.

Once you have paid off your debt at the highest interest rate, solve it with the next higher interest rates, and so on until everything is paid off. It will take time, but the more you define a strategic debt, the more you reach your goal (and the more you save overall).

2. Consider refinancing

When you refinance your loans, a private lender will repay your existing loans and consolidate them into one monthly payment, which will potentially reduce your interest rate. Not everyone is qualified for refinancing, but if you have good credit (many lenders require scores of at least 600), a steady income and a proven track record of repaying your debts on time, you are a strong candidate.

If you qualify, lowering your interest rates slightly can have a significant impact over time. For example, let's say that right now you have a balance of $ 40,000, with 7% interest and a term of 10 years. Over the life of the loan, you will end up paying close to $ 16,000 in interest. But if you lowered your interest rate to 5%, for example, you would save about $ 5,000 in interest, all other factors remaining unchanged.

Before deciding to refinance, do some research to compare different lenders to make sure you get the best interest rate. In addition, ask yourself if you are willing to give up some of the benefits offered by federal loans, such as income-based repayment plans and debt cancellation programs. If saving money is at the top of your list of priorities, refinancing to get a lower interest rate may be a good choice.

3. Pay off your balance properly

You probably know that to pay off your debt faster, you will need to do more than the minimum payment each month. But you must also make sure the extra funds go to the right places.

When you pay extra in addition to your minimum payment, some loan managers will automatically allocate this money to your interest, not the principal amount. It may sound good, but when you do not pay the principal, you do not pay the balance of the loan. However, by applying additional payments to the principal, you reduce your total balance, which also reduces your future interest payments, allowing you to repay the loan faster.

Also be sure to check the terms of your loan to make sure you do not pay for additional payments or principal payments only. If you are, you may be able to work around the fees by adding the extra payment to your monthly payment.

Debt can be a necessary evil for most people, but it does not have to ruin your retirement. Even if you are in debt at an advanced age, there are strategic ways to repay it as soon as possible so that you can ease the burden and start making the most of your retirement savings.