Getting Out of Mortgage Debt

Posted by: Sophie H. | Jun 11,2008


I’ve implored here that people need to think about getting out of credit card debt before retirement whenever possible.  A new survey shows that this even more important for a growing number of retirees.  The survey says that mortgage debt is increasing among people over 55 by 20 percent every year.  20 percent!  That’s a staggering number.  It means that people are entering retirement with all sorts of debt.  Credit card debt is just the tip of the iceberg, but if you’re combining credit debt with a mortgage you’ve got to be doubly aggressive about tackling both debts as soon as possible.  

Part of the rising number in mortgage debt is due to the fact that retirees are borrowing off of equity and then taking that new debt into retirement.  Perhaps that equity is being used to pay off outstanding credit card debts, but studies show that equity is most often used for other daily expenses, rather than debt repayment.  The problem I’m signaling out is those people who have both a mortgage and credit card debt post-retirement, because that can be especially debilitating – especially if new costs arise, such as medical costs, which is virtually inevitable.  

The average mortgage debt for retirees is around $50,000.  Average credit card debt is $10-$20,000.  These figures can vary wildly depending on the person.  People 55 and older generally have higher credit card debt for the sheer fact that they’ve been using credit cards for longer.  Alternately, you could make the argument that retirees have less of a mortgage burden because they’ve been paying off the mortgage for longer.  This new survey suggests otherwise, which is not a good portent for the new class of retirees.  

So what should you do?  I’d say tackle the credit card debt first.  If you’re carrying a mortgage debt as well, you should go for the higher-interest debt first because that will be there for longer.  Refinance your mortgage if at all possible, and if you’re one of the lucky ones to still have equity to borrow, use this to pay off high-interest debt.  It’s better to get one debt out of the way, even if it means creating another one by taking out a new home equity loan.  Be sure to be upfront with your lender about how your using equity, as this can make it easier to secure a loan – which is not as easy to do in today’s market – because it will show that you’ll have less of a debt burden post-loan, meaning you’ll be better positioned to pay off the equity loan.  

Check out our calculators to help get you started on reducing your current debt load, and take a look at LowerMyBills to get a good deal on a home equity loan.  

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