All You Need To Know About Debt Relief Options For Seniors

 

Retiring and moving into the "golden years" is not looking as bright for seniors as it did in years past.  Nowadays, many  are facing mounting debt that is putting a definite strain on their retirement account.  Households with those 55 and older are seeing a big rise in debt and the potential of outliving their money.

When it comes to the debt we are seeing seniors struggle with, surprising for many, it has to do with student loans.  Not for themselves but for helping their children and grandchildren.  This seems to be a trend this day in age where parents are helping support their adult children. The question now becomes, how can you get back on track so that you can enjoy your retirement years.

Options for senior citizens to pay down credit card debt

Create and stick to a budget

Your income is not fluctuating much when you enter the retirement years.  For many, social security benefits will make up the bulk of your monthly income but with the average payment under $1500 a month, it does not add up to a whole lot when you are facing debt.

The only way to tackle this financial situation is to create and stick to a budget.  Take a look at where you are spending your money and cut back where you can. If you find that your debt payments are outweighing your income, it may make sense to look into debt relief organizations for seniors.  If it is an option, seeking part time work may help ease the burden as well.

In addition, if you have not started collecting your social security benefits, it may make sense to delay collecting.  If you can hold out until 67, you will get considerably more than if you collect at 62.

Consider downsizing

When people hear the word downsizing they immediately think of the home they are in.  In this case, it also ties into revamping your spending habits.  Maybe less trips to the mall and less lunches out with your friends.  If you have a high car payment, perhaps selling it or getting rid of it altogether could make sense for you.  Public transportation is not the worst idea and now they have the Ride or Drive calculator, which helps you figure out if  ride-sharing apps like Uber and Lyft would wind up being cheaper than owning a car.  If you can get rid of all the expenses (car insurance, gas etc.) that come with a car, you are looking at a nice chunk of change that can really help with your budget.

Now if we look at housing, downsizing to a 1 bedroom apartment may not necessarily be cheaper.  During a time when you want to be enjoying life, many nicer condo associations can cost a pretty penny.  The idea here is to start with small changes.  Cutting back on the number of vacations you take in a year or cutting back on any financial help you lend to your children may be all you need to do to get on track.

Look into Debt consolidation

  • Reverse mortgage:  There are different ways you can consolidate debt.  One of the most popular ones for seniors is the reverse mortgage.  You have probably seen the commercials on TV.  To qualify, you need to be at least 62 and have a good amount of equity in your home along with the ability to sustain payments for property taxes and insurance premiums.  With this type of loan, you are not making monthly payments.  You have to pay it back at the time of death of the last surviving borrower or whenever the home is sold and it is no longer the primary residence.  If the borrowers have passed and the heirs don't have the means to pay off the loan, the house can be put up for sale and the proceeds would go to closing out the mortgage.  If the loan balance exceeds how much the house is worth, the difference does not need to be paid. Just be sure to do your homework before going with this type of mortgage, there is a lot of shady practices happening out there.
  • Home equity loan or HELOC:  Another popular option to help consolidate is to take out a home equity loan. This type of loan gives you a lump sum of money that you payback in equal payments.  There is also the option of the home equity line of credit.  This gives you a revolving line of credit that you don't begin paying back until you are done borrowing.  Both of these options are letting you access the equity you have in your home.  In order for these to work for you, your mortgage debt needs to be below 85% of the value of the home.  In addition, the percentage of your income going towards the debt should not go above 45%.
  •  Personal loan:  If you don't have enough equity built up in your home, this is an option.  A lender will give you a one-time loan that has a fixed interest rate and you make payments over the agreed amount of time.
  • Balance transfers:  If you can find a card with a low interest rate or better yet 0% interest rate (there are ones available for those with good credit) you can use the card to pay off the balance interest free..of course you need to be diligent about making payments so that it is paid off before the promotional period ends.

Whichever option you choose, having a good credit score will get you the best rates.

Bankruptcy

Bankruptcy is the last line of defense for many, but as a senior, it may be your best bet if you are carrying a lot of debt.  Filing for Chapter 7 bankruptcy will liquidate some of your assets (except your retirement accounts) in order to pay off your debts.  Things like child support, alimony and majority of student loans will not be forgiven.   Your credit score will take a hit and the bankruptcy does stay on your credit report for 10 years but you can start rebuilding your credit right away.

Chapter 13 bankruptcy is for people that have the income to repay all or some of their debt but can't do so immediately.  This plan allows you to pay it off and your assets remain safe.  Furthermore, your home is safe from any foreclosure proceedings.

Although bankruptcy does have an impact on securing credit in the future, this may not be as much of an issue for someone in their senior years.  This will give seniors a fresh start while being able to keep their home and retirement money safe.

There are a few things to keep in mind if you are not thinking about bankruptcy.  Things like credit card debt, private loans and your car loan debt will not be passed on to your heirs.  These will get paid off from your estate.  So your heirs will get less of an inheritance but they will not have to take on your debt.  Any public student loans are forgiven upon your death.

Debt relief resources for seniors

Credit counseling

In addition to the options above, there are organizations available that specifically help seniors manage and understand their financial situation.  Nonprofit credit counseling agencies are a good place to start since they begin by giving you a detailed review of your finances.  They will then offer you specific advice related to your situation so that you feel more in control.

If the case is more extreme, you can get into a debt management program.  When you enroll, you consolidate your payments but your debt amount stays.  You will make a monthly payment to the credit counselor and they make the payments to the lenders for you.  They also work on your behalf to negotiate lower interest rates and fees associated with your debt.  If they can get your interest rates lowered, the more money goes to your principal and you can pay down your debt faster.

If you are going to go this route, try and stick to nonprofit credit counseling agencies as they stick to strict standards for protecting consumers (look for organizations that are backed by the National Foundation for Credit Counseling and Council on Accreditation).

Government programs for seniors

If money is an issue, seniors that are carrying debt may be eligible for government assistance in paying for Medicare premiums, copayments and deductibles.  Eligibility for Medicare Savings Programs are different depending on the state you reside in.  Look up your state for specific requirements.

Another organization worth looking into is the Administration on Aging (AoA), which is backed by the U.S. Department of Health and Human Services.  Its purpose is to protect seniors and help them out with things like nutrition and wellness, health insurance as well as protection against being financially exploited.

 Final thoughts

Different from previous generations, more seniors are heading into retirement with mounting debt.  If this is the case, it is not too late to get things back on track.  Taking a hard look at finances and ways to budget and make lifestyle changes can go a long way.  If the situation is more dire, debt consolidation may be the answer.  Whatever route is needed, know that there are lots of resources for seniors.

 

 

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