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Taking on debt is always a leap of faith, no matter your age. But taking on debt when you are older should be handled even more carefully.

Similar to retirement investing advice, in general, the younger you are, the more risk you can take. You simply have more time to recover from any downturns.

Good Debt vs. Bad Debt

Discussion of debt is often broken into two kinds — good and bad. Bad debt carries high interest and goes to buy things that usually don’t have the ability to bring a return. Also, it is most often used to buy things that you don’t need and can’t really afford. Think about things like credit card debt taken on to go on a clothing shopping spree.

Good debt is usually something that you can’t pay for in cash all at once but that will pay off in some way and has lower interest. Some examples of good debt can be taking out a mortgage or a student loan, if you can afford the monthly payments.

Retirement & Home Loans

While many people aspire to pay off their mortgages before retirement, the financial reality has more and more heading into old age still making monthly payments. If you have already paid off a mortgage and are looking to move, before taking on a new home loan there are a few things to consider. Many of the same factors apply no matter what age you are — how long you plan to stay in the area, whether you can afford the down payment, what the taxes will be, how the monthly payment fits into your budget, etc.

When applying for a 30-year loan later in life, you may be looking at a reality where you will be passing that home (and the loan) onto your heirs when you die. You might need to consider life insurance policies that will cover the cost, so you aren’t passing on a burden. This is especially true if you are retired and no longer covered by an employer’s life insurance policy.

You may determine that you don’t require as big or as expensive a house in retirement. You may also have less flexibility in your budget because of a fixed income. If you still have a mortgage, you may consider downsizing to a less expensive home. If you’ve built up enough equity in your current home, you might even be able to sell and buy a cheaper home so you can live mortgage-free.

Middle Age & Student Loans

A career change in your 30s, 40s, 50s or beyond may require some additional education. There are certainly lots of factors that go into deciding to go back to school. But with the high cost of education, finances cannot be ignored. Even if you have the cash on hand to pay for that degree, it’s a good idea to consider if this is the best use of that money. And if you will be taking out student loans, it’s even more important to think about what return that degree will offer and whether it is really makes sense to go back to school.

Things to consider include what the monthly student loan payment will be, what job prospects will open up for you, how your salary potential will increase, etc. Then, of course, there are the more intangible things to take into account — how much you will enjoy it and how important expanding your knowledge is to you. Then there are other alternatives to look into — like auditing classes instead of getting a degree. Some schools have programs where senior citizens can audit classes for lower fees or even for free. It’s wise to consider all of your options.

Before taking on any debt, it’s important to make sure your credit score is in good shape so you can get the best interest rates possible. You can see two of your credit scores every month for free on Credit.com.

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