4 Tips to Help 40-Somethings Manage Their Debt

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Handling debt is a challenge for those of all ages, and the problems start early in our adult lives. It's only natural to incur some heavy debts in our 20s and 30s, as we're dealing with the imbalance between our relatively scarce financial resources and the sizable expenses of getting started with careers and families.

By the time you hit your 40s, you might hope to have moved past that phase. But although many people in their 40s have well-established careers that produce sizable incomes, they also often face growing financial commitments -- both to themselves and to family members. That's a big reason why 40-somethings have the highest levels of debt of any age group, and unlike younger groups, they've seen their debt levels increase slightly since 2005, according to figures from the FICO Banking Analytics Blog.

Debt management in your 40s isn't just about paying down debt. It's also about making sure you're using the right kind of debt to handle the most important expenses you face. Also vital -- maintaining the ability to repay your debts while simultaneously ramping up savings for your longer-term goals.

To address all those issues, here are four things that 40-somethings should keep in mind in dealing with their debt.

1. Anticipate Big-Ticket Expenses.

Dealing with unanticipated expenses can break the budgets of young adults. But by the time you hit 40, you have plenty of life experience behind you and can predict what sorts of financial demands will come up. In particular, major expenses like putting children through college or replacing a vehicle are fairly easy to foresee. The smarter you can be about planning for them beforehand, the better you'll be positioned to minimize how much debt you have to take on to pay for those expenses later.

Having an emergency fund with three to six months' worth of income is out of reach for many young adults, but by your 40s, it becomes more realistic. Having that fund available can keep you from incurring debt and provide a cushion you can tap later for college expenses and other big-ticket items.

2. Get The Right Protection For Your Family.

As 40-somethings hit the peak debt levels of their lifetimes, they're most vulnerable to unforeseen tragedies like a death or major illness in the family. Between lost income and increased expenses, such events can crush even a well-crafted financial plan.

Having the right insurance policies in place to protect against tragic events can ensure your family's financial survival. A simple term-life insurance policy usually costs relatively little but can provide enough death benefits to pay off a home mortgage and other debt while potentially leaving additional savings available for future needs.

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Disability insurance can replace lost income and cover qualifying expenses if you're unable to work following an accident or illness. Working with an insurance company to craft the right protection package for you could mean the difference between beating debt and suffering a big financial setback.

3. Put Your Best Debt-Foot Forward.

Young adults tend to take advantage of credit wherever they can get it. But as you get older, your access to better credit should increase, allowing you to skip expensive forms of debt like credit cards and payday loans and instead get low-rate loans that are much easier to pay off. Although low-rate specials on car loans and credit cards can make their interest costs attractive, the most consistently inexpensive financing usually comes from a home mortgage or home equity loan, with government-subsidized student loans also offering reasonable rates for many students. If you have to have debt, look to consolidate it into these favorable areas, then avoid taking out further high-cost debt in the future.

4. Set the Stage For Your Own Future.

As important as debt reduction is, 40-somethings also have to face the inevitability of their own future financial needs. One big reason why it's so important to get rid of bad debt and focus on concentrating outstanding balances in inexpensive forms of credit is to give yourself the flexibility to save more for retirement. As your salary increases, the potential matching contributions from your employer also rise, and you won't want to miss out on the opportunity to collect more free money to put toward your retirement savings.

The hallmark of your 40s is that debt stops being a necessary evil and starts becoming more of a potentially useful tool. By focusing on the positive aspects of debt in helping you balance competing financial needs while avoiding the downsides with which you're already familiar, you can put debt on your side and manage it effectively.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.