You worked hard, played by the rules and you were not reckless with your money.
But now as you’re approaching (or in) retirement you’re struggling with debt.
The sad reality is many seniors are outliving their savings and they’re using credit cards to pay for medications and basic living expenses.
Numbers don’t lie. Consumer debt levels are near record highs and bankruptcies are on the rise.
Today we’ll explore some practical solutions for senior citizens and retired people struggling with debt.
8 Solutions For Seniors Struggling With Debt
We’re focusing specifically on solutions for credit card debt and medical debt because:
- They’re both prevalent among seniors and retired people.
- Credit cards are often used to pay healthcare and prescription drug expenses.
Option 1: File Bankruptcy
Filing bankruptcy might seem extreme, but don’t rule it out. It can address your debt problems in a hurry. Some of the advantages of filing bankruptcy are:
- Once you file, creditors and collection agencies are immediately notified and from that point forward they are legally prohibited from contacting you.
- If a creditor or collection agency has filed a lawsuit against you, filing bankruptcy usually stops that lawsuit in its tracks.
- If you qualify for Chapter 7 bankruptcy, most or all of your unsecured debts could be discharged — gone forever.
- If you do not qualify for Chapter 7, you probably qualify for Chapter 13 bankruptcy where you are put on a court-approved payment plan (typically 5 yrs) based on what you can afford.
Some of the downsides to filing bankruptcy are:
- You will have to appear in Federal Court at least once for a hearing.
- Depending on your situation, the Bankruptcy Court could require a court-appointed trustee to control and oversee your estate.
- Bankruptcy is a matter of public record for anyone to see.
- Bankruptcy can remain on your credit report for up to 10 years.
For additional information on bankruptcy and answers to FAQs, here’s a great resource.
Option 2: Debt Settlement
If you know what you’re doing, you can negotiate settlements on outstanding debts for $0.30-0.50 on the dollar.
Credit card companies and collection agencies would prefer you didn’t know about this option, but over the past 15 years I’ve obtained millions of dollars in debt relief for my clients. Negotiating settlements can provide substantial debt relief in a relatively short amount of time without having to file bankruptcy.
But not everyone qualifies for debt settlement. Certain criteria criteria must be met. If this is an option you’re considering, click here to see if you qualify for the debt settlement process.
PRO TIP: Some people naively think you can simply call a credit card company or collection agency, tell them you want to settle your debt for less than full balance and they’ll say, “Sure, no problem.” Sorry, doesn’t work like that. They make you jump through hoops and navigate mazes deliberately to make the process difficult, hoping you’ll give up. Plus, it’s often not what you know but who you know. Yes, you can attempt to settle your debt on your own, but fair warning, … it’s not easy. If you’d like to see if we can help you, click here to request a free phone consultation.
Option 3: Credit Counseling (aka Debt Management)
Credit counseling services are usually provided by a non-profit agency that works on your behalf to reduce the interest rates on your outstanding debts and lower your monthly payment. Once everything is set up, you make one monthly payment to the credit counseling agency, then they distribute funds proportionally among your creditors.
Credit counseling services will stop any harassing collection calls. Keep in mind, with this option you will pay the full balance you owe plus interest. No debt relief is granted. If all you need are lower interest rates and a lower monthly payment, this option might be for you.
Option 4: Get A Loan (or Home Equity Line Of Credit)
Certainly not the worst thing you could do. But getting a loan requires collateral (i.e. equity in your home, property you own, etc). If you don’t have collateral, obviously this isn’t an option.
Getting a loan makes sense if you’re not looking for debt relief and you don’t want to mess with a credit counseling service. A loan allows you to pay off your high interest debt and consolidate everything into one lower monthly payment at a lower interest rate.
Option 5: Reverse Mortgage
A reverse mortgage differs from a regular mortgage (or home equity loan) in that you don’t pay the loan off in monthly payments. Instead, the balance is due when you die, move to another home or sell your home. At that time, the mortgage is paid off when your home is sold and any additional profits go to your estate.
With a reverse mortgage, you can receive your loan in a lump sum or via monthly installments.
To be eligible for a reverse mortgage, you must be at least 62 years old and own your home free and clear (or owe very little on it).
For a detailed comparison between a reverse mortgage and a traditional home loan, here’s a great resource.
Option 6: Sell Stuff
We’re not talking about having a garage sale or selling beaded jewelry on etsy.com. Rather, liquidating one or more of your larger assets like a classic car or boat to raise quick cash and pay off debts. Look, you can’t take it with you, so you might decide it’s worth selling one or more of your possessions if it means less worrying how you’re going to pay your bills each month.
Another option that should be on the table is downsizing your house and using the profits to pay off debt.
If the kids and grandkids are grown, do you really still need that 3,200 square foot home? Forget about “the memories” of your current home. Create new memories. Maybe a less expensive, but very nice condo where they take care of the lawn is the way go … and no debt.
Option 7: Get Help From A Family Member
If you have family members that are doing well financially, consider swallowing your pride and asking them for help. I know if I was struggling financially, my kids would help me in a heartbeat. And if my parents ever needed any money, I’d be right there for them as well. No hesitation.
Needing financial assistance is nothing to be ashamed of. Debt happens.
The key point is that you’re not asking for help you pay off your gambling debts or your 6-week vacation on the French Riviera. In those instances, they probably won’t have much sympathy for you.
Option 8: Do Nothing
Most people have a hard time with this option, but I’ll mention it anyway because it can be a viable option in the right circumstance.
What if you did nothing and just let the accounts go delinquent?
Obviously if you have the money to pay, you should honor your financial commitments. But if you don’t have the money to pay your bills, what’s the worst that could happen?
Your accounts could go to a collection agency. It’s even possible you could get sued for the debt.
But if your only source of income is social security or a pension, those are almost always off-limits to creditors. If you have no assets, there’s nothing for creditors to repossess. Even if you own your home free and clear, a creditor can’t force you to sell your home or take out a home equity loan to satisfy a debt. Essentially you’re judgment proof.
As the saying goes, “You can’t squeeze blood from a turnip.”
FAQ: Seniors & Debt
Are there any government programs offering financial assistance to seniors?
Actually there is. Not for paying off credit card debt or other personal debts, but there is a government program for help with Medicare premiums. It’s called the Medicare Savings Program and you can get more information here.
There’s also an agency in the U.S. Department of Health and Human Services called the “Administration On Aging” offering programs and services for seniors. You can find out more here.
Is credit card debt inherited?
In other words, what happens to credit card debt after someone dies?
If you’re a joint account holder (i.e. co-applicant) and you’re the surviving spouse, you owe your deceased spouse’s debt. But if you’re just an authorized user on an account and not a joint account holder, you’re not financially liable.
If you are the beneficiary of an estate, any existing debts are first paid off then you get what’s left over. However, if someone dies and they have no assets, the creditors are out of luck. They can’t collect what isn’t there.
Conclusion
Short of winning the lottery, the options listed above are what you have to choose from.
Debt relief for seniors and people in retirement has a unique set a challenges because:
- You’re usually on a fixed income.
- You might not be physically able to work extra hours or get a side job to earn extra money to pay off debt.
- You’re in the latter stage of your life and you probably don’t have 30-40 years to pay off debt (or a loan).
In addition, many seniors come from a different era where you pay back every penny that you owe, no matter what. The thought of debt relief through bankruptcy or debt settlement is taboo.
But times change, and it’s wise to (re)consider all options.
Whatever you decide, don’t be too hard on yourself. Debt happens to good, honest, decent people all the time — often due to circumstances beyond their control.
My last piece of advice … make a decision as soon as you can. It might not be easy, but you’ll worry less and sleep better at night knowing you’ve thought this through and you have a strategy in place.
