According to the AARP, one of the main reasons people aren’t able to save money for retirement is the amount of money they’re already spending on repaying debt. The amount of consumer debt has doubled in the last twenty years, with consumers now owing nearly $16 trillion in debt. While almost three fourths of that debt is from home mortgages, about 25% is from student loans, vehicle loans and unsecured debt like credit cards and personal loans. Forty-five percent of that debt is owed by people over the age of 50 and over 70% of people over the age of 50 have debt they’re trying to repay. The statistics for people over 75 are even more alarming. The AARP says that the percentage of people over 75 with debt more than doubled in the last two decades.
It’s not difficult to understand that as people age, the likelihood of paying off debt from wages or other earned income grows dimmer each year. During the time of life that people should be focused on growing their retirement accounts they’re instead focused on repaying debt. AARP reports that among people over age 50 with debt, 10% of them have debt considered “high,” meaning their monthly debt payments are too high compared to their monthly income. These older people are spending over 40% of their income on repaying debt. Depending on a person’s ethnicity, between 26-46% of people responding to a survey said their debt was preventing them from dealing with other financial priorities, like retirement.
It doesn’t have to be this way, however. Bankruptcy, either Chapter 7 or 13, can eliminate or reduce the unsecured dcbt that makes up 25% of the debt held by consumers. Even discharging student loans in bankruptcy can become easier as people age and have a shorter time period for earning income. I often tell potential clients that if it’s going to take longer than 3-4 years to pay off debt then bankruptcy should be considered instead. Even with Chapter 13 bankruptcy, people will likely have no unsecured debt after five years. More time should instead be used to build retirement accounts or college accounts for children. If you feel unable to save for retirement because of debt, contact me so we can discuss how bankruptcy might help.