According to the Employee Benefit Research Institute, debt among American families headed by someone 55 or older had increased from 53.8% in 1992 to 65.4% in 2013. Retirees have also reported that they incurred the following kinds of debt: credit card (27% of retirees), mortgage (23%), home equity line or credit (17%), or car loans (17%). As seniors turn to their fixed income, such as pension and social security, yet cost of living rises, they find themselves falling behind on payments.
This scenario is unfortunate as the older members of our society would want to spend their twilight years in relative comfort after long careers. Instead, a lot of them are forced to work long after their primes just to make ends meet. In some cases, it becomes a matter of staying active until they’re physically incapable of productivity.
Fortunately, seniors who have incurred debt have options other than toiling away until their bodies give out on them. By seeking the right kind of help and talking to the right people, debt can be reduced to much more manageable levels. Here are some programs that have helped Americans deal with financial liabilities in their advanced ages:
- Debt negotiation: Debt negotiation refers to the attempts at settling a debt by a debtor who enlists the help of a third party firm to negotiate on his behalf. The firm will communicate to the creditor that the senior citizen is not in good financial shape and only has a few working years left in him or her.
- Debt consolidation: Debt consolidation assumes that there are several debts that the senior needs to pay. By offering a new loan to pay off these debts, debt consolidation groups such as banks and credit unions combine the existing debts into one, reducing the interest the senior is required to pay.
- Debt management: Debt management is another option for seniors who are dealing with financial adversity. A debt management adviser is a professional who is tasked to recommend a smart and doable strategy to repay the debt. This financial expert will aid in negotiating a new payment scheme with the creditors, relieving financial burdens for the client who may be stretching his resources thin.
- Credit counseling: Getting advice from a credit counselor can assist a senior citizen in coming up with a plan to pay off the debt. The credit counselor will evaluate the senior’s current financial situation and formulate a strategy that suits his fixed income and lifestyle.
In order to pay this in one go, the senior agrees to put away some money by depositing a fixed amount into an account each month. When he has saved enough to pay the lump sum in this account, the debt settlement company contacts the lender and speaks on the debtor’s behalf. Once the creditor agrees to the terms, the original amount the senior owes is reduced and the debt will be satisfied.
This type of debt settlement is best for seniors who have serious debt (at least $10,000 or more) and are unable to meet their monthly payments, making the balance owed grow out of proportion.
Although the various debts are consolidated into one account and are paid with a single loan, the amount that is owed to the creditors remains unchanged. Also, not everyone can enroll in this program. If the account has already defaulted or the senior does not meet a minimum credit score, then he will not be able to use this option. Other factors that could affect debt consolidation approval are monthly income, home ownership and the types of loans you initially took out.
If eligible, however, the senior will enjoy the ease and convenience of taking care of just one loan with friendlier interest rates. In some cases, the monthly payments are reduced, though the debt will stay in the books longer than the original ones were supposed to.
Unlike debt consolidation where one is still required to pay the same balances, a debt management planner can ask the lender to reduce interest fees, or even lower the monthly payments. Despite these savings, the senior is expected to pay the debt management agency a minimal fee for their services. This is usually $10 to $15 per month for each debt account enrolled.
This solution is best for seniors who need a lower interest rate monthly and can stick with the repayment program for the full five years.
Aside from this, the counselor can also educate the senior in handling his finances and prevent getting into debt again. He can propose to the senior a debt relief program that will fit his needs and preferences. There are several credit counseling services that are free, but there are also some that are for profit.
Retirement for seniors should be a time of relaxation. They should be free from stress associated with collection agencies and credit card companies. One of the ways they can do this is through the debt settlement solutions above. If you’re near the end of your career but are still dealing with heavy financial responsibilities, consider seeking help today.
Still looking for more information? Dive into our comprehensive guide below that runs through several options for seniors:
Your senior years should be one of the best times of your life. It’s when you get to enjoy the fruits of your younger days.
Sadly, most are not prepared for retirement. Seniors and debt should never mix, but that’s not often the case. Retirees have reported carrying many kinds of debt, including: credit card, mortgage, home equity line or credit, and car loans. As seniors transition to a fixed income many find themselves falling behind on payments, with financial obligations that continue to haunt them well into their 60s and 70s.
Luckily, all is not lost. There is plenty of help for seniors in debt that can be considered. Let’s discuss some of these options, from debt forgiveness for seniors to help for seniors to pay bills.
Consider loans for senior citizens to help consolidate debt
Taking out a single debt to pay off for multiple debts might be a good move depending on your situation. You can typically negotiate for lower interest rates, which can reduce your overall debt. It’s also much easier to handle.
Some examples include using your home equity to borrow or getting a reverse mortgage. These are particularly good loans for senior citizens with bad credit.
If you don’t have enough home equity and you have a good credit standing, a personal loan might be the answer. Check out our debt consolidation calculator if you’d like to see if this will work for your personal situation.
Use your retirement fund with care
Your retirement savings is a good source of funds to pay off your debts in a pinch.
However, you must be very careful in managing your retirement funds because it’s a limited resource. This is especially true if you’re 100% retired and have no steady source of income.
Also, take note that retirement money is taxable. The more you withdraw, the larger the tax, and the less you’ll have left to pay off your debt. Be sure to take this into account.
Adjust your lifestyle
If you haven’t already, making changes to your lifestyle is a quick fix you can do right now that will have lasting results. It means cutting off anything unnecessary from your life to save money.
Examples might include reducing travel—a favorite senior pastime—or selling off expensive home items. You should also consider downsizing your car to a cheaper model, or instead, relying on public transportation.
The key is to make lifestyle changes that may be difficult at first, but provide more sustainability in the long run.
Make sure to pay current bills on time
You might be tempted to funnel all available funds to pay off their debt, especially if you’re bringing in a sizable income.
However, neglecting your current bills is just asking for more trouble in the future. Anything unpaid can balloon up with interest payments, creating a scenario of seemingly endless debt for you.
The key is to get an additional source of income, or cut off unnecessary expenses, to be able to have extra funds to pay off your debts.
Have a debt repayment strategy in place
Successfully paying off your debts needs plenty of preparation and planning. That’s why you should look into the many debt repayment strategies you can apply to your situation.
The easiest is the snowball method, which involves paying off your debt one at a time, starting with the obligation that has the smallest balance. You can also try the debt avalanche strategy that focuses on paying off high-interest debt first.
The important thing is sticking with your chosen strategy until you pay everything off.
Make use of senior debt relief programs
The federal and state government usually has several senior citizen debt help initiatives in place to assist with debt relief for seniors. Most provide financial aid with housing, food, and medical needs.
You can also look at non-government sources to help with debt relief. You can apply for debt forgiveness or repayment programs to help you manage paying your credit card or loans better.
Finally, seniors can seek legal protection from the Administration on Aging if creditors are harassing them. They also offer health, wellness, and other senior services.
File for bankruptcy
Bankruptcy is usually a last resort solution for seniors that have debts they can’t manage any other way. While it has negative connotations, filing for bankruptcy can be beneficial.
Bankruptcy will liquidate your assets, so you can pay off your debts with a repayment plan that lasts three years. In some cases, your loans can even be forgiven. The good news is that your retirement funds are protected during bankruptcy. You also get to keep a portion of your home equity.
Of course, the drawback is that it will drastically lower your credit score. Fortunately, it’s something that can be rebuilt over time. You can learn more about this option by reading our article on debt relief vs bankruptcy.
Debt relief for seniors can be a challenging undertaking, but it’s by no means impossible.
If you’re retired, or close to it, but are still dealing with heavy financial responsibilities, consider seeking help today. Sign up for a free consultation with one of our friendly, judgment-free Debt Consultants to discuss how we can get you started on your debt relief journey or use our Savings Calculator to see how much you could save.