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Keeping seniors out of debt.

Silver-haired debt is ruining a lot of retirements these days. While staying out or getting out of financial troubles often is more difficult for seniors than for younger age groups, it can be done with some careful planning. According to SRI Consulting Business Intelligence, Princeton, N.J., seniors are relying on credit cards, running up record debt and filing for bankruptcy much more than they did a decade ago. None of this is surprising. The bear market and low interest rates for fixed-income investments have crippled the portfolios many draw on for living expenses.

Adding to their woes are skyrocketing medical costs, coming at the same time employer retiree health benefits have been reduced or eliminated. Moreover, they typically do not have employment income to bail them out. If you are retired (or soon will be), here are eight tips to help keep you solvent.

Overcome your pride. Many are too proud or embarrassed to admit they have debt problems or to ask for help in getting out of them. Talk to someone close to you who understands personal finances. Better yet, consult with a competent financial planner or see a credit counselor.

Stop giving money to your children and grandchildren. Sure, you love them, but they will understand if you cannot afford to loan them money or finance college. Otherwise, you could end up being a financial burden on them.

Budget. Workers commonly believe they will spend 20 to 30% less in retirement than they did while on the job. Yet, many retirees find they spend as much or more. They may incur heavy health care costs or may not have sufficient retirement income. (Four in 10 rely primarily on Social Security.) A budget can align expenses with income, and free up extra dollars to pay down money owed.

Go easy on the credit cards. Seniors often pay for prescriptions and other medical expenses they cannot otherwise afford by credit card. At the least, ask your lending company for a lower interest rate, or transfer the balance to a credit card with a better rate. The best solution, though, is to stop using the card.

Tap the equity in your home. Seniors typically have significant value built up in their home, and they can exploit it with a home equity loan or a line of credit (but watch out for predatory lenders charging high rates). In addition, you may be able to take a tax deduction for the interest you pay on the loans.

Go in reverse. The downside of home equity loans is that you risk losing your house if you cannot pay back the loan. You can avoid this risk by borrowing against the value with a reverse mortgage, taken out in a lump sum, as a line of credit or in monthly payments. The advantage is that you do not have to repay what you borrow (plus interest and fees) until you sell the house, move, or the surviving spouse dies. The caution here, warn financial planners, is that reverse mortgages are complex, fees and interest rates can be steep, and you probably should not use this method unless you plan to remain in the house for a long time.

Ask for a property tax reduction. Low-income seniors, and in some places, anyone 65 or older may quality for such a reduction.

Work. Returning to work--or not leaving if you are on the cusp of retirement--may not be a desirable option, but even a part-time job can help alleviate debt. Besides, many retirees are finding that a little work is psychologically, as well as financially, beneficial.
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Title Annotation:Retirement
Publication:USA Today (Magazine)
Geographic Code:1USA
Date:Dec 1, 2003
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