Nobody wants to be in debt, but the average American household carries $117,951 in debt including mortgages, lines of credit, credit cards, student loans and car loans, all on an average annual household income of $43,000. This average debt amount may not be so insurmountable if you are in your mid-20s or 30s, since mortgages make up about $95,000 of that average debt load. However, if you are someone who is closer to the end of your working career, such a large amount may be almost unmanageable.

Debt's Emotional Toll
A study has shown that debt could be taking more than just a financial toll on you - it could be making you clinically depressed. For those who are nearer to retirement - between the ages of 51 to 64 - debt weighs the heaviest on your mind, and for good reason. With retirement nearing, it becomes clearer that there is no easy way out of this financial mess. However, it is not debt such as student loans or mortgages that tends to make people the most blue; credit card debt and payday loans are the most depressing.

Payday Loans and Credit Card Debt
Payday loans are notorious for their high interest rates, and can charge up to $30 per $100 borrowed, or a whopping 30%. Once you get stuck in a payday loan cycle, it can be hard to break it, as repaying the loan means living on a lot less than you're used to (or are able to) for the next paycheck or two.

As for credit cards, the average U.S. household's debt is $15,950, and if we assume that the average interest rate is between 15 and 19%, that means this debt costs $2,392.50 to $3,030.50 a year in interest costs alone, or $199.37 to $252.54 a month. This sum may not seem like a lot if you're young and still pulling in a steady paycheck, but those who are nearing retirement should consider whether they will be able to make such a debt payment on an average Social Security benefit of $1,230 a month.

Mortgages and Student Loans
In addition, many people face long-term debt such as a mortgage and student loans on top of consumer debt. One in five households owes close to $34,703 in student loans and about $149,782 in mortgages, and not everyone has these loans paid off by the time they near retirement.

A Worst-Case Scenario
In the grimmest scenario, someone who is currently drawing on Social Security could be paying about 20% of their net income each month to credit cards. Any payday loans would cost an extra $369 a month. This retiree would be spending a total of about 50% of their income each month on short-term debt. That leaves a little over $600 to pay the mortgage, line of credit, student loans and car loans, and on top of all that, they still have to eat.

The National Debt
Finally, there's each taxpayer's share in the national debt, which currently stands at $16.483 trillion dollars, or $52,432.25 per U.S. citizen. This money will eventually need to be paid back. If the U.S. government decides to do something about that, debt-burdened consumers could find that higher taxes give them even less breathing room each month.

The Bottom Line
Being in debt is never any fun at any age, but being in debt when you're near retirement is one of the worst scenarios. The older you are, the more difficult it becomes to pay down your debt because your peak earning days are likely behind you. You could also lose your job and not be able to find another one as easily, or be forced into early retirement due to health issues. The sooner you clear your debt and take control of your money, the better. Don't wait until it's too late.

Related Articles
  1. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  2. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  3. Mutual Funds & ETFs

    Mutual Funds Millennials Should Avoid

    Find out what kinds of mutual funds are unsuitable for millennial investors, especially when included in millennial retirement accounts.
  4. Retirement

    Retire on 70% of Your Income? Why It's Not Enough

    Many people think 70% will be enough to support them in retirement, but they forget a few significant expenses that could lurk in the future.
  5. Professionals

    Why Women Are Underprepared for a Spouse’s Death

    Women are typically less prepared for the death of a spouse than men. An advisor can help mitigate some of the financial burdens widows may end up facing.
  6. Retirement

    How Robo-Advisors Can Help You and Your Portfolio

    Robo-advisors can add a layer of affordable help and insight to most people's portfolio management efforts, especially as the market continues to mature.
  7. Professionals

    3 Benefits of Working Longer (and Retiring Later)

    There are many reasons why folks in their 60s may want to keep working until at least age 70. Here are three.
  8. Retirement

    What Does It Cost to Retire in Costa Rica?

    Tally up the costs associated with taking your retirement in Costa Rica, and determine whether you have what it takes to live in paradise.
  9. Retirement

    How Are 401(k) Withdrawals Taxed for Nonresidents?

    As a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
  10. Retirement

    The 5 Best Retirement Communities in Asheville, N.C

    Learn about some of Asheville, North Carolina's best retirement communities and discover why the area is such a popular retirement destination.
  1. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  2. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  3. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  4. How can I determine if a longevity annuity is right for me?

    A longevity annuity may be right for an individual if, based on his current health and a family history of longevity, he ... Read Full Answer >>
  5. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  6. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!