Retiring, $40,000 in Credit Card Debt, No Savings, What Should I Do?

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Q. I’m 65 years old and my wife is 59. We’ve got about $40,000 in credit card debt and are planning to pay about 90% of it off with remaining 401k money. We live on a tight budget and will have basically no savings. The cost of living is high where we live and I don’t know what to do. Please help.

Dear reader,

I understand the urgency of your situation and the frustration you must feel when faced with financial choices that are not easy to make. Reaching out for answers in this situation is a good first step. Managing your credit card debt can be challenging, but you still have options to tackle your debt without dipping into your 401k. In fact, I highly recommend that you don’t use what’s left in your 401k it to repay your debt because not having any savings will definitely cause bigger problems in the future.
Some general debt repayment options include self-administered debt repayment strategies, debt settlement or, in some cases, bankruptcy. Yet, I think your best option will be to talk to an NFCC-certified credit counselor. Your counselor will start by reviewing your overall financial situation while carefully examining your expenses and income. With guidance from your counselor, you will review your budget and identify areas where optimization could lead to additional savings. With the help of an experienced nonprofit financial counselor, you might be able to discover some possibilities that you may have previously overlooked.
Your counselor will also walk you through several debt repayment options to help you find the right strategy for you. For instance, your counselor may suggest a Debt Management Plan (DMP), which is an ideal strategy for anyone who struggles with high credit card debt. If you enroll in a DMP you can expect to complete the program and repay the included accounts in approximately 5 years or less. This is often a much faster payoff timeline than what would occur if self-managing past-due accounts. The difference is largely because of arrangements that often result in an overall reduction of interest, the cessation of late fees and a lower monthly payment. You will need to make on time, full monthly payments to the credit counseling agency and they will distribute your payment to your creditors. In order for the program to achieve success, you will have to close your credit cards (which you will be required to do in most debt repayment strategies anyways), and you should be prepared to manage your budget without any new lines of credit for the duration of the program. You can also expect a cost for the program but considering the overall reduction of interest and fees over time, any maintenance fees are often more than offset by the long-term savings. Understanding that there are exceptional situations, nonprofit counseling agencies will waive fees in situations of extreme financial hardship.
Since you and your wife are near retirement, it is essential that you get the best possible advice to manage your finances and repay your debt. I believe preserving your retirement money and saving for your future is as important as paying your debt, if not more. The personal financial guidance you need is typically offered at low or no cost by most nonprofit credit counseling agencies and counselors can be reached over the phone or in person. You can take the next step and call today to speak with an NFCC Certified Counselor. You have already taken an important step, so I encourage you to keep moving forward in the right direction. I wish you all the best!
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!

*Some questions have been shortened and/or altered for publication purposes while others have been published as is.