Our parents lived in a cash society. When you decided that you wanted or needed something, you first decided if you could afford it. If you did not have the money in the bank to pay for it now, you simply did not buy it. With the exception of home mortgages, with 50% down and 15 years to pay, debt was considered irresponsible. Store accounts were used, but were paid promptly and in full.
Enter the credit card and the “buy now pay later” mindset. Back in the 60’s, I remember my Dad shaking his head when he learned I had one. Having lived through the Depression, he was wary of such easy money. I, on the other hand, felt quite proud that I had qualified for a card because they were not readily available. How quickly that changed.
Now, in retirement, one of the core rules preached by every financial advisor is to eliminate all debt. No mortgage, no auto loans, no credit cards with unpaid balances. Essentially, we are told that - (1) the future is now, (2) interest deductions no longer are worth as much, and (3) interest payments have become too dear. In other words, we have come full circle and must now return to the mindset of the cash society.
What’s a person to do?
- Start weaning yourself from the “buy now pay later” mindset. The bargain that seems too good to pass up actually can cost two or three times the bargain price if it is carried on a credit card for a few years. The interest rate on these debts can often exceed 20%.
- At least five years before retirement, you should start to make a concerted effort to pay off all debt, with any balances you might be carrying on credit cards the first target.
- Leasing autos can be wise when they can be expensed against a business, but that equation changes when deductions are no longer possible. Plan how you will select and pay for your “retirement car(s).
- If you have been in your homestead for many years, the mortgage may be paid off. If not, however, it may be wise to sell you home and buy a smaller one for cash. Obviously, it makes no sense to sell in a down market. But you can invest the sweat equity now by preparing the home. Painting and cleaning can take a surprising amount of time.
Other information is available at
Bankrate’s Credit Cards for Seniors,
AARP Debt Reduction Calculator, and
CNN Money.
NB. Click below to make a comment. To avoid the new Google requirements, simply choose the “Nickname” option.
If you would prefer to make an enhancement to the original article, please go to wikiSenior and click on edit.