We all borrow money but if debt is keeping you awake at night then you need to take charge.
One of the best benefits of being pension age is that you have a fixed regular income that, while subject to some fluctuation from the markets, is largely fixed at about the same annual figure.
But although the tabloid media would have us to believe that the majority of over 60’s have benefited from final salary pension with big lumps of cash to invest – this is not always the case.
The recession has led to some private pension plans dropping significantly in value leading to a lower amount to purchase an annuity. Others have reached the age when they thought they would be receiving their state pension only to find the goal posts have been moved and they unable to find work to keep going until they qualify. All these factors are contributing to a looming retirement debt crisis.
This doesn’t necessarily mean borrowing on a credit card or taking out a small personal loan for a holiday or new car and paying it back in affordable chunks – but real debt amounting to tens of thousands of pounds that there is no hope of repaying.
Debt charities have reported that the percentage of over 60’s contacting them – while still quite small – is on the increase.
So if you are worried about paying money you owe then burying your head in the sand won’t make it go away. Debt charities such as the National Debtline www.nationaldebtline.org or Step Change www.stepchange.org offer their advice free of charge and can help you come up with plans to pay it back.
But beware – they are not be confused with commercial debt advice companies who may ask for an upfront payment and leave your finances in a even worse state without solving your problem. Downsizing is a good way to pay off debt or reduce your living expenses such as council tax and utility bills. But not everyone wants to move from their family home.
Many older people have paid off their mortgages and taking out a lifetime mortgage on their home may be a way of paying off the debt. But there are pitfalls. You may be able take out a lifetime interest only mortgage on your home – which can be up to 60 per cent loan to value providing you meet the affordability criteria. But if one partner dies will the surviving partner have sufficient pension income to meet the repayments?
Equity release loans work differently. Loan to value will be much lower and there will be no repayments until the home is sold. But with compound interest building up year on year, the final debt may be substantially more. Usually there is built in protection against negative equity but it is important to be aware that the borrowing will eat into your homes overall value and any inheritance will be substantially reduced.
To my mind this was a good product when property prices were rising year on year – but this is no longer the case nor is it likely to be for some to come.
Be positive about taking control of your debt. Speak to a debt charity and see if you can reduce your payments. If you own your home and want to release some cash that way, contact an independent financial advisor who can look at your personal circumstances and recommend the best course of action for you.