Millions of Americans who were born in the Baby Boom are now within just a few years of their official retirement ages but still face significant financial problems that may hinder their abilities to pull out of the workforce by the date they'd originally planned. In many cases, these may relate to simple credit issues that can be fixed with relative ease, as long as these older workers are willing to put in the time and effort necessary to repair credit.
Baby boomers all across the country likely faced numerous financial difficulties brought on by the recent recession that led to many problems that could delay their retirement. For instance, many who were laid off from their jobs, or even saw their hours reduced appreciably, might have had to cut back on their retirement savings efforts, and many even had to dip into those funds ahead of time — suffering a penalty fee for doing so — which may have set them back by as much as a few years in those attempts to put together the necessary funds for their golden years. Others, though, not wanting to take that kind of hit, likely found themselves instead relying more heavily on their credit cards to make ends meet, and that's where these potentially massive credit issues might arise.
Over-reliance on borrowing can do major credit score damage
One thing many people may not realize when they rack up credit card debt is that doing so can significantly endanger what may have previously been a good credit score. While the common perception is that credit card lenders want borrowers to carry as much debt as possible, the simple fact is that this is not the case. In reality, the amount of debt borrowers carry makes up 30 percent of their credit score, and as such should be carefully managed.
The best way to max out this portion of a credit score is to simply keep the amount of debt carried at any one time to about 30 percent or less of the total allowable limits across all accounts. Any more debt than that will cause one's score to deteriorate, and that in turn will lead to more significant credit problems. As a consequence, those baby boomers who increased their reliance on credit cards during and following the recent recession will likely see far greater difficulties in dealing with those bills going forward. The only way to bring these balances down, in turn, is to make larger payments into them every month, because new federal laws mandate that any payments above the minimum listed on bills must be applied directly to the principal balance, rather than interest charges, which will in turn bring them down appreciably.
However, another potential pitfall that comes from having higher credit card debts is that the monthly minimums will necessarily be larger, which in turn could potentially lead to to missed payments every once in a while. But even the occasional late or altogether missed deadline can do major credit damage, as payment history comprises some 35 percent of a borrower's score. That means just one misstep in this regard can significantly reduce borrowers' standings, and undo as many as several months or more of hard work to repair credit ahead of retirement. Unfortunately, the only way to straighten out these issues is typically make on-time payments once again for a period of at least six months; while this will not remove the indicator of this problem from the borrower's standing, it will potentially help to smooth it over by showing lenders that it was a one-time incident.
Not repairing credit can be hurtful in retirement
Consumers who pull out of the workforce also typically see their annual incomes fall at least somewhat, with most seeing declines of 20 or 25 percent, and in some cases even more. That, in turn, may make it more difficult to cover high credit card bills responsibly and can endanger retirees overall financial standings once they're done with their careers. Credit cards typically come with far higher interest rates than other types of financing, as well, and that too can lead to debts ballooning if they're not addressed properly. For this reason, it might be wise to pay down these balances to extremely low levels or altogether to avoid further issues in the future that can endanger even basic everyday needs.
Another way consumers can better protect their finances prior to their retirements is to order copies of their credit reports regularly and check them over for any unfair markings that could otherwise endanger their finances and scores. If any such entries are discovered, it might be helpful for boomers to work with a credit repair law firm, which may be able to help sort the problems out more quickly.