Debt among seniors has increased significantly in the last decade (83%), as per the data given by the Federal Reserve. Due to this debt burden seniors may feel a huge financial pressure upon them. That pressure may force them to do more work even after retirement.
Despite having a decent income and social security, many senior citizens have to use credit cards to pay their basic daily expenses. The situation is getting worse day by day, as the cost of living is getting high whereas the income is static. As a result, seniors are getting more inclined to credit card usage. But the harsh truth is, paying off high-interest credit card debts will likely be impossible for them.
What options do seniors have for managing their debt?
When seniors come face-to-face with a huge pile of credit card debt, they may experience severe stress and anxiety. This situation may summon serious medical conditions and their life may be at stake.
There is one more small issue. Seniors might also feel embarrassed to talk about their debt problems with their family members and friends. They also hesitate to take help from professionals.
So, their problem remains unattended. They start to lose hope in this case and do nothing about it. Finally, they face abusive collection calls or file for bankruptcy.
But practically, if they look closely, few solutions are there to help. Let’s look at them closely.
a. Getting help from your close ones
While some seniors may feel embarrassed about discussing their credit card debt problems, many of them may try to share the issue with their family and friends. Often, just talking about the problem may open new ways to solve it, and alleviate stress and anxiety. If you are having a similar situation being a senior citizen, one of your family members, a friend, or any other special person, having good financial knowledge, may guide you to solve your credit card debt problems.
Sometimes, just a little help with budgeting and money management can be a big considerable help. Some family members may help you to pay off your debts by providing monetary help or extend loans with 0% interest. Alternatively, they might also negotiate with your creditors or collection agents if accounts have gone into collection.
b. Apply for a reverse mortgage
A reverse mortgage allows seniors (62 and older) to borrow money against the equity in their home. Seniors can opt for monthly installments instead of having a lump sum amount from the bank. The lender receives the money after the borrower sells off the home and pays back the loan. The same thing happens when the borrower moves out to another home or dies.
Seniors should own the home entirely, or have significant part of home equity before opting for a reverse mortgage. The home should be their primary residence. Reverse mortgages can be written on owner-occupied single family homes, multi-family homes and condos, and manufactured homes that are HUD approved and meet the requirements of the FHA. The money taken out from a reverse mortgage can be used for paying off debts, especially credit card debts.
There are certain criteria to get the loan. The title should be in the name of the borrower. Real estate taxes should be paid timely and at the time of taking out the loan, it should be updated. The house should be in good condition, else the lender or bank may call off the loan.
There are several types of reverse mortgages available to seniors, so they should find the right reverse mortgage that fits with the financial requirement of them.
c. Refinance your existing mortgage
Seniors may also refinance their current mortgage with a low-interest loan if they have a good amount of equity and a steady source of income. This way they can encash their ownership a.k.a the home equity when they need urgent money.
However, if they have owned the home for a long time and the mortgage is about to be paid off, then refinancing the entire home again with a new loan will be unwise. Considering their current age and the life span, logically seniors may not carry a 30-year mortgage for another 30 years.
It means they can never become free from the mortgage burden. It may sound harsh but it is true. Apart from that, they may have to pay much more interest over the life of their mortgage.
Refinancing your current mortgage and using the money to pay off credit cards may give you a temporary solution. But remember, being a senior it doesn’t give you total relief from debts. Converting your unsecured debt (credit card debt) into a secured debt (home mortgage) probably isn’t the best idea to become debt free.
But still, if you are in need of urgent big amount of money, you may try this option.
d. Take out a home equity line of credit
If being a senior you have owned the home for a long time, or owe much less than the house is worth of, you may take out a loan against the home’s equity. It is called a home equity line of credit (HELOC). By using this option, a homeowner may use his/her home equity and take out a line of credit when needed. Generally, HELOC comes with a low-interest rate, which is much lesser than a credit card. So, paying off credit card debt with the help of HELOC sounds like a good plan.
There’s a catch. Like refinancing mortgage, you are also putting your home equity in danger. Turning unsecured debt into a secured one is not good. This could affect the total liquid assets of the estate in a negative way. If things go wrong, your house may fall into the depths of foreclosure. Losing a home being a senior and due to foreclosure is a devastating situation.
e. Selling your assets
Sometimes, selling off their valuable possessions or assets can help senior citizens to pay off debt. But it should be a last resort to manage their financial problems. Imagine you are selling your house, car, boat, or any other valuable possessions just for making debt payments, how would you feel? Being a senior citizen you might have an emotional bonding with your assets. So, when you need to sell them off, the impact on you can be traumatic.
So, carefully consider all the probable situations before making any decision. Paying off unsecured debts such as credit cards isn’t always the best choice if it pushes you into a financial black hole. It is always better to consult your situation with a professional financial planner.
f. Taking help from a debt relief company
Seniors can take the help of a debt relief company to tackle credit card debts. Debt relief companies can negotiate with credit card companies and lower the total balance owed. Generally, the debt relief companies handle all the communications with the credit card companies, which can remove a lot of the stress and anxiety involved.
So, there are many options available for seniors to handle the burden of credit card debt. Getting out of debt is not easy. But it is possible even for seniors who live on a fixed income. Seniors, sometimes with help from family, should consider all possibilities and do their due diligence to find the right solution.