Ten debt time bombs for the over-40s
Make sure you don't end up retiring in debt...
Recent CCCS figures show that the most consumer debt is being carried by those over 60 years of age (see our infographic). This worrying trend means that a lot of people are nearing the end of their working lives staring into a black hole of debt misery.
For those in their 40s now, here, we’re going to take a look at the ten debt time bombs that need to be avoided to ensure you’re not looking at the same misery as some of those in their 60s are now.
So in reverse order, here are the time bombs to try your best to avoid…
10. Credit cards, store cards and personal loans. If you’re using these facilities for day-to-day expenses it’s time to stop and make active efforts to pay them off as soon as you can.
These high-interest and readily-available forms of credit are the most expensive drain on your money if you don’t use them wisely.
If you can’t live without them and you’re using them to live on a daily basis, you’re already in trouble. Use our free and impartial online service Debt Remedy to get some instant expert advice.
9. Mortgage Endowments. Massively mis-sold in the 80s and 90s, a surprisingly high number of people still hold these underperforming financial vehicles.
If you’re in your 40s there is still time to look at these products and decide whether to cash in and look for alternative ways to repay your mortgage and manage your debt.
8. Children’s education. Government policy regards university education has changed and many of these new and significant costs are going to have to be paid for by parents.
The temptation to once again rely on credit should be eyed with caution.
7. Negative equity. If you’re currently stuck in the property stalemate that is negative equity you might want to seek independent advice. If you have a repayment mortgage at an amount you can afford, the situation hopefully isn’t too bad.
If your mortgage is interest only and you have significant negative equity then you should really consider your position and take independent advice.
Find out more in Don’t be panicked by negative equity.
6. Interest rate change. You might be managing your mortgage payments quite comfortably at the moment, but if you’re on a variable rate mortgage, you should keep in mind that we’re experiencing record low interest rates.
If the interest rate changed, say by 1%-2%, would that mean that you would suddenly start to struggle?
You might want to start making provisions now for such a change with a rainy day fund, or think about fixing your mortgage now before it’s too late. Read more in Rate rises will hit 90% of borrowers.
5. Lack of Interest. Interest rates also have an impact on savings. You might feel safer with a bit of cash in the bank, but currently it’s not likely that the cash is working to your advantage.
If you’ve got cash in the bank, but you also have personal loans, credit and store cards then effectively you are costing yourself money.
With current interest rates so low, it would make sense to clear high interest debts at the expense of a bit of emergency money.
4. Prices. We‘ve already blogged about this before. Rising costs are currently affecting everyone, but if you’re struggling with mortgage payments and credit debts the current spiralling cost of living isn’t helping.
Nobody has a crystal ball, but we can’t bank on the cost of everyday necessities falling anytime soon. So with pressure to clear debts, pay off mortgages and save for the future on all of us, it seems the over 40s are going to be performing a tricky balancing act for the foreseeable future.
3. Pensions. Those who have a pension are in a better position than those who haven’t undertaken any pension saving, but even those who have saved for retirement are finding that the pensions themselves are not performing adequately.
Saving for a well-earned retirement could be becoming a thing of the past.
2. Interest-only mortgage holders. Surely the price of property always rises and so the need for a repayment mortgage is not an issue, as the equity in your property will grow at such a rapid rate?
We all know that this isn’t strictly true. It’s probably the reason why interest-only mortgages are harder to come by in this new age of austerity.
Many interest-only mortgages were sold with the proviso that other investments were to be made in order to repay the capital. The checking of these investments was not stringent in the past. Many people didn’t have a specific repayment plan in place.
If you’re on an interest-only mortgage you might want to speak to your lender and see if you could afford a repayment mortgage, or at least start to make additional payments towards the capital element.
Many people holding interest-only mortgages believe that if they continue to repay the interest, the bank will take no further action. However, if your mortgage is limited by a term, it’s worth speaking to your lender; it’s best not to assume.
At the end of many interest-only mortgage terms, the lending bank will expect to be repaid the original capital loan in full.
1. Jobs. This BBC Panorama article might be talking about the over 50s struggling with unemployment, but those in their 40s need to be made aware of this growing trend now.
With the drastic state of the economy, can we now rely on employment up to retirement? The government may have changed the laws on compulsory retirement but this is no comfort to many who find themselves out of work at the time when they should be in their prime earning years.
This new infographic from the CCCS shows that the majority of people suffering with debt problems are doing so as a result of a loss of employment or reductions in income. Combined with our earlier infographic about the age group carrying the largest amount of debt, this is sobering reading for all our futures.
If you’re worried about any of the above we’d urge you to seek advice now. If you’re struggling with debt you can get free and impartial advice from CCCS by using our online debt help tool.
All these time bombs can be avoided with careful planning. We’re there if you need a debt charity, but we’d rather you didn’t have to call us!