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Debt Rising for Older Americans
Older American families where the head of the house is age 75 or older are facing a debt crisis that may imperil their ability to finance the remainder of their lives. According to a study released by the Employee Benefit Research Institute, older Americans are grappling with more both housing and consumer debt.
The study suggests that older Americans are taking on more debt in order to maintain their standard of living. The percentage of income older Americans are paying out to debtors has more than doubled from 2001 to 2004.
In part, home refinancing opportunities have been responsible for this debt increase. As housing values continued to climb, refinancing a home to draw in extra cash seemed a good option but has resulted with homeowners having less equity in their homes. They now face longer repayment timelines and higher mortgage payments as a consequence.
Now, with housing prices falling, many homeowners find themselves owing more on their homes than those homes are worth on the prevailing market. This is especially serious if older homeowners are put in a position of having to sell their homes and cannot wait for the market prices to improve.
The second villain in the picture is credit card debt. A debt of $10,000 with a credit card interest rate of 25% can turn into $227,374 in just fifteen years. Such a situation proves hard to resolve especially for older Americans on fixed incomes.
This debt accumulation is not only an issue for elder Americans themselves, compromising the quality of their lives and the comfort of their retirement, but is also represents debt that will be passed on to their children and heirs at the time of their deaths.
Financial advisors advocate taking proactive measures to achieve debt reduction and urge younger Americans to get serious about contributions to their 401k and IRA retirement plans to avoid facing this same debt trap in the future.
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