4 Tips to Help the 50-Plus Crowd Manage Their Debt

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Letting debt overwhelm your finances is bad news no matter when it happens in your life. But for those 50 and older, it's even more important to rein in the negative side of your balance sheet and get a handle on paying it down while you're still in a relatively strong earning position.

Historically, advisors have urged those 50 and older to get their debts paid off entirely before they consider retirement. But the trends in the U.S. show that advice is hardly being followed. The Harvard Joint Center for Housing Studies cites Census Bureau data showing that median debt levels have risen at a much faster rate for older Americans than for other age groups.

Specifically, the median debt level for people ages 55 to 64 rose by more than 60 percent between 2000 and 2011, while those 65 and older saw an even more dramatic increase -- nearly 120 percent -- during the same period. The JCHS also observed that among those 65 and older, the percentage of households with mortgage debt doubled to 40 percent in 2010, while among those ages 55 to 64, 70 percent now carry mortgage debt, citing the Federal Reserve's most recent Survey of Consumer Finances.

That's not the direction you want your finances going. As your future earnings prospects dwindle, it's more important than ever to get debt under control. With that in mind, here are four things that those 50 and older should consider.

1. Insure Against Your Biggest Financial Threats.

For younger people supporting families, life insurance coverage is an important way to protect against unforeseen tragedy. But even though life insurance can still play a role for those 50 and older, the bigger financial threats are those that will leave you facing major long-term medical expenses. Maintaining health-insurance coverage throughout your career and adding supplemental insurance coverage to Medicare when you're eligible will go a long way toward preventing massive medical bills from eating away your savings.

Moreover, looking into long-term care insurance as you head north of 50 can help you avoid the financial damage that paying out-of-pocket for skilled nursing care and other specialized health care can cause. With Medicare and most health insurance providing only limited coverage for long-term care, a separate policy is worth considering to further reduce your financial risk.

2. Understand Your Debt-Handling Options.

Older Americans have access to some debt-management products that others don't. The most popular is the reverse mortgage, which allows you to tap the equity in your home without the same risks of a conventional mortgage or home-equity line of credit.

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By structuring a reverse mortgage according to your needs, you can access either regular monthly payments, a lump sum, or a line of credit from which you can draw at will.

Yet before you jump at the chance to take out a reverse mortgage, you need to understand its terms. Although the reverse mortgage has features that allow you to live in your home throughout your lifetime, unfortunate incidents involving the loss of the home for surviving spouses or due to failure to make regular tax payments make it clear that there are potential pitfalls. Before choosing any debt-management option, make sure you know how it works in every circumstance -- including worst-case scenarios.

3. Wean Dependents Off of Your Money.

Before you hit age 50, you've likely faced the challenges of not only taking care of your own finances but those of other family members. But once you reach age 50, you'll most likely see the light at the end of the financial-support tunnel, and it's important to start focusing your savings toward your own needs rather than those of dependents.

In today's tough economy, many young adults have remained financially dependent on parents well past graduating from college, and members of the Sandwich Generation have also had to provide support for struggling parents. As hard as it is to start insisting those dependents fend more for themselves, you can't afford to take on new debt or divert money away from paying off existing debt in order to support them. The sooner you start the process, the more gradually you'll be able to work toward regaining your financial independence and taking care of your own money needs.

4. Beware Of Debt-Reduction Scams.

Con artists often prey on older Americans, and fraudulent credit-counseling and debt-management services are an increasingly popular way for those scammers to take advantage of the unwary. Although legitimate credit-counseling services exist, be especially cautious about any service that charges you a large upfront fee or doesn't review your finances before asking for money. In addition, demand everything in writing, and contact your creditors before you pay money to a credit-counseling service to ensure that they've actually agreed to its terms.

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

Originally published