4 Strategies Seniors Can Use to Manage Their Debt
With nearly 80% of Americans in some form of debt, thousands reach retirement age each year still carrying a significant financial burden. In the wake of the Great Recession, many individuals saw their plans for retirement crumble or degrade in value. Though the economy has since recovered, its strength still fluctuates regularly. Seniors and those about to retire often face mounting costs on a fixed income. Whether you carry credit card debt or another financial obligation, what can you do to lessen its impact? There are several strategies and possible pathways you could explore. Let’s consider a few of them.
Explore debt consolidation strategies
For seniors with lots of credit card debt, the high-interest rates they can carry mean it’s easy to become swamped with never-ending payments. As soon as you pay off some debt, more seems to arrive immediately in the form of interest. To escape this cycle, consider the possibility of a debt consolidation loan that you can use to pay off all your credit cards. Now, the debt from those cards is instead owed to the loan provider at a reduced interest rate. Though this doesn’t eliminate your debt entirely, it does make it more manageable especially on a typical senior’s fixed income.
photo courtesy of Greenberg Health
Tough mortgage payments? Refinance
It might not be credit cards that are putting pressure on your finances, though. What if it’s a mortgage payment? With typical 30-year terms, a house you bought before retirement could still be a major financial obligation. Are you worried about falling behind on your mortgage payments? Speak to your lender before that happens. You may have the option to refinance for a better interest rate or lower monthly payments. With restricted cash flow and few ways to bolster that income, a lower mortgage obligation can free up much-needed money every month. You can then use this money to pay bills, pay down other debt, or simply improve your quality of life.
Use a reverse mortgage to pay down debts
What if you own a home, but you aren’t bound by a mortgage anymore? A reverse mortgage could be an ideal way to tap into accumulated home equity through a special loan. This option is only available to seniors who meet certain conditions. You receive monthly payments (lump sums and lines of credit are also an option) and can continue to live in the home, paying taxes and insurance as needed. The loan doesn’t come due until you pass away or vacate the property. Using these funds to pay off high-interest debt and more is a good idea for how you could use your loan proceeds. While not for everyone, it is a viable option many seniors choose.
Bankruptcy doesn’t have to be a bad word
In some severe cases, filing for personal bankruptcy may be the most feasible option. The law protects retirement accounts in bankruptcy, and in many cases, exemptions exist to protect your home (if you own one). Chapter 7 bankruptcy is especially useful for seniors who have mounting medical debts they cannot hope to repay; if you qualify and complete the process, these debts are totally discharged. Speak to a lawyer or financial adviser if you feel declaring bankruptcy is the only option. The process isn’t as scary as you might think.
Don’t worry about debt — seek help instead
Facing the realities of debt can trigger a sense of dread and anxiety, especially for older individuals. Everyone wants to be able to enjoy life without concerns about cash. With the strategies outlined above, you can begin taking steps to reduce or eliminate the influence debt has on your life. Of course, no solution is worth trying without thoughtful consideration first. Combined with careful budgeting, leaving debt behind is a real possibility. You can then turn your attention to focus on other, more enjoyable things — like making the most of your retirement! Is it time for you to take a step back and look at all the options?
Author: Ravi Kumarr Gupta
