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Millions of adults 60 and over continue to strike this surprising type of debt – The Motley Fool

It's rare to find someone who doesn't have any debt at all – whether it's a mortgage, credit card debt, a car loan, etc. – and older Americans are no exception. More than 80% of baby boomers currently have some form of debt, according to a Financial Services Company Nitro survey, and only 5% said they had never been in debt before.

But while there is no shock that so many people are in debt, millions of older adults are struggling with a type of debt that is quite surprising: Student loans.

  Person buried under pile of paper holding signs

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About 2.8 million American adults over the age of 60 carry student loan debt, according to a report from the Consumer Financial Protection Bureau, and this figure continues to increase. Since 2005, the number of older adults with student loan debt has quadrupled, and the average amount owed the jump from around $ 1[ads1]2,000 to $ 23,000 during that period.

These numbers do not necessarily mean that millions of seniors have begun to return to school. Researchers found that nearly three-quarters of adults over the age of 60 with student loan debt said they borrowed money for their children's education. Still, debt is a debt, and for many older student borrowers, the additional financial burden is causing trouble – 39% said they had gone without health care, such as prescription drugs and doctor visits, to afford student loan payments.

Sometimes certain types of debt can be inevitable. However, debt in any form should not throw the chance of enjoying a comfortable pension. If you crawl up on retirement age and drown in debt, there are some things you can do:

1. Pay Down High Interest Debts First

If you are saddled with different types of debt, you look at the interest rate on each type and start tackling the debt with the highest rates first (while making minimum payments on the other types, of course).

High-interest debt can be incredibly toxic to your finances, and if you only pay the minimum payment, it can take several years to pay – and cost thousands of dollars in interest. For example, say you have $ 5,000 in credit card debt with an APR of 16%. If you make a minimum payment of $ 100 each month, it will take about 7 years to pay that debt and you will end up paying around $ 3,300 in interest alone.

But if you were to increase your monthly payment by just $ 50 a month, you could pay your debt in less than 4 years and cut your total interest payment in half.

When you have paid the highest interest rate debt, you deal with the debt with the next highest interest rates, and so on until everything is paid off. It will take time, but the more strategic you are about which debt you nail first, the faster you reach your goal (and the more you save overall).

2. Consider Refinancing

When you refinance your loans, a private lender pays your existing loans and consolidates them into a single monthly payment, which potentially reduces the interest rate in the process. Not everyone qualifies for refinancing, but if you have good credit (many lenders require points in at least the high 600's), stable income, and proof that you pay your debts in time, you're a strong candidate.

If you qualify, you can lower the interest rate yourself a little, gain significant influence over time. For example, say now you have a $ 40,000 balance that pays 7% interest with a 10-year loan period. During the lifetime of the loan you will end up paying nearly $ 16,000 in interest. However, if you were to lower your interest rate to 5%, you would save around $ 5,000 in interest, all other factors remaining the same.

Before you decide to refinance, do some research to compare different lenders to ensure you get the best interest rates. Also consider whether you are comfortable giving up some of the benefits that federal loans offer, such as income-driven repayment plans and debt forgiveness programs. If you save money at the top of the priority list, refinancing to get the lower interest rate can be a good choice.

3. Pay Your Balance In The Right Way

You probably know that to pay off your debt faster, you have to do more than just the minimum payment each month. But you should also make sure that extra money goes to the right places.

When you pay extra because of the minimum payment, some loan service people will automatically put the money in your interest – not the main amount. It may sound good, but when you do not pay the principal, you do not actually pay the loan balance yourself. But by using extra payouts towards the principal, you reduce your total balance, thus lowering future interest payments, so you can pay off the loan faster.

Also make sure to check the terms of the loan to make sure that you are not charged for additional payments or for principal payments. If you are, you may be able to get around the fees by thanking the extra payment on your monthly payment.

Debt can be a necessary evil for most, but it does not have to ruin the pension. While you are saddled with debt in your senior years, there are strategic ways to pay off as quickly as possible so you can lift the burden and get the most out of your retirement savings.

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