By 2050, the world’s population of people over age 50 will double to 2.1 billion. Those over the age of 80 will triple by 2050 to 426 million. This very rapid change in the age of the world’s population will present various challenges including old-age income insecurity. For Boomers, the median retirement savings is about $162,000 and the average estimated Social Security check is about $1,691 a month. The average credit card debt is $8,208. Boomers currently owe more than Millennials ($6,182) and Gen Zer (3,196). Overall, the average Boomer owes about $25,812 in credit cards, auto loans, and student loans. All of this combined with inflation, and a downturn in investments, will make it very difficult for future seniors to manage their finances. Is there credit card debt forgiveness for Seniors? Is relief for a senior even possible? Let’s review this as a real possibility.
How Do We Get Into Debt With Our Credit Cards?
The lure of credit cards with ease of use can be addictive. You see something, you want it, and you buy it with no thought of how you will pay for it. I always felt that if the minimum payments are below $100 then it was affordable. This is the minimum payment trap that makes it possible for people to overspend. It allows them for the moment to live above their means. However, this is only temporary because the power of being able to buy whatever you want whenever you want will lead to thousands of in credit card debt. Hence, this will eventually lead you to live paycheck to paycheck.
Eventually, a financial event or an increase in your credit card interest rate could make you fall behind in your monthly payments. Thereby, starting the phone calls from a debt collector for payments or the full amount owed because they have your telephone number. This could be devastating for senior citizens living on a fixed income without any other or few additional sources of income. The good news there are some financial resources that may help.
Your Home As A Financial Resource
If you own a home, you could tap into the equity of your home to help pay off credit card debt. Equity is the difference between what the home is worth and what you currently own. For example, if your home is worth $250,000 and you owe about $100,000 on the home, the equity is $150,000. Therefore, you can take out a Home Equity Loan or a Home Equity Line of Credit (HELOC) or apply for a Reverse Mortgage.
Key Differences
There are key differences between Reverse mortgages, Home Equity Loans, and a Home Equity Line of Credit. Knowing these key differences will determine which option will work best for you.
To obtain a Reverse Mortgage you must be 62 or older. You can borrow a lump sum or receive annuity-like payments from the equity in your home. The senior must own the home or have a small mortgage balance. There are no income requirements. Finally, the balance plus the interest accrued is due upon moving out, selling the property, or dying. However, if not paid back the bank can foreclose and sell the property.
A Home Equity Loan has no age requirements. You receive the loan in one lump sum payment. The borrower must have at least 20% equity in their home. You are required to make monthly payments to cover principal and interest. A good credit score and proof of a steady income are required.
A Home Equity Line of Credit (HELOC) has no age requirement also. You receive a line of credit that you can draw as needed. Here again, you are required to have 20% equity in your home. The main difference is you pay interest only on what you withdraw. A good credit score and proof of a steady income are required.
Investopedia provides a full overview of these types of financial products and the pitfalls of each including tax advantages.
Personal Loans To Pay Off Credit Card Debt
Personal Loans with a lower interest rate can be advantageous for paying off credit cards. It will allow you to pay off the debt while saving money on interest over time. However, note that a lower interest rate is not always guaranteed so shop around until you find one that fits your budget. Also, some personal loans can come with fees typically called origination fees. Therefore, you should keep this in mind while you are doing your research.
Personal Loans are another type of debt. You are only transferring the debt not actually paying it off. Hence, it could be hard to not use your credit cards again, thereby creating even more debt. Without discipline and a budget, a senior could find themselves in even more debt. For additional information regarding using a personal loan from Bankrate click here.
Debt Consolidation Loans For Seniors
Debt Consolidation Loans differ from personal loans in terms of how they are used. Personal loans can be used for debt consolidation, but they can also be used for other major purchases. You receive the entire lump sum to be paid back in installment payments over a predetermined period.
Personal loans typically range from $1,000 to $20,000, but some lenders offer loans for as much as $100,000. Most personal loans are also unsecured, meaning you’ll qualify for the loan solely based on yourcreditworthiness(credit history, credit score, income, and debts) per Experian. Therefore, your credit report is an important part of the application process.
A Debt Consolidation Loan is a personal loan used specifically to pay down debt or pay off debt. Therefore, it is typically marketed to consumers as a financial product that can lower monthly payments or interest rates. The convenience of making one lower payment per month versus multiple payments of various amounts is the biggest advantage of Debt Consolidation loans.
Balance Transfer Credit Cards
A balance transfer is a type of credit card transaction where a balance from one card is moved to another to obtain a better interest rate. Typically, a 0% interest rate.
The ability to transfer credit cards to a 0% APR credit card can not only help older adults out financially it can in most cases improve their credit score. However, opening multiple new credit cards to obtain 0% APRs can negatively impact your credit score.
I have used balance transfer to float our solar panel balance while waiting for the tax rebate from the state that was spread out over a few years.
Please note that typically the credit card companies charge a balance transfer fee of 3% to 5% of the total amount you transfer or a minimum fee of $5 to $10 to transfer the balances.
Retirement Funds As Credit Card Debt Forgiveness For Seniors
If you have a substantial amount of funds in your retirement accounts, you might be tempted to pay off your credit card bills with some of your funds. I am 100% for going into retirement debt-free. This is my goal as I have worked through paying off credit cards, car loans, medical bills, and student loans. All that remains is the mortgage. As enticing as this may be to use retirement funds, I caution you to consult a financial advisor for all the possible ramifications.
In most cases, it’s a bad idea to drain your 401(k), IRA, or other retirement assets to eliminate credit card obligations. That’s because if you’re under 59 ½ years of age, you could face a 10 percent tax penalty plus have to pay ordinary income taxes on any amount you withdraw per AARP.
Nevertheless, if you can afford to pay off your credit cards without harming your bank account or financial situation then this may be an option for you.
Payday Loans
While there is no set definition of a payday loan, it is usually a short-term, high-cost loan, generally, for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans may be available through storefront payday lenders or online, per Consumer Financial Protection Bureau (CFPB)
There are so many reasons why these types of loans are bad for credit card debt relief
- Highest Interest rate – the interest is almost 400%
- They must be paid back within 2 to 4 weeks.
- Your ability to pay back the loan could become a financial burden.
- It encourages a cycle of debt: borrowing and repaying and borrowing again.
- It takes a plan and time to break the cycle of debt.
- It is not regulated by federal law. Check with your state to see if they are permitted, regulated, or prohibited.
Credit Counseling Services
It is always a great idea to consult a credit counselor when you become overwhelmed with debt. Credit counseling organizations are typically non-profit organizations that advise on managing your money and debts per the Consumer Financial Protection Bureau (CFPB). They may also offer free education, information, and workshops to help you. They can help you create debt management plans that do not include reducing the amount you owe. However, they can lower the overall monthly payment. This is a great first step towards Being Financially Sound.
Debt Settlement Companies
On the other hand, a Debt Settlement company offers to arrange a settlement of your credit card bills with the credit card company for a fee. They typically negotiate a lump sum payment which you must save up to settle with the credit card company. However, the settlement funds must be saved in a separate account that you can control by a third party. Finally, the fees charged can range from 15-25% of the total debt that is being settled.
The Federal Trade Commission has stipulations on when these fees are to be paid.
- They must successfully renegotiate, settled, reduced, or change the terms of at least one of your debts.
- You must agree to the settlement agreement, debt management plan, or other terms reached by the debt settlement company with the creditor or collection agency.
- You must make at least one payment to the creditor or debt collector based upon the debt negotiation agreement by the debt settlement company.
Once all these stipulations have been met then they can receive their fee. Please beware of debt settlement companies that want an up-front fee prior to negotiating your settlement.
Creditors and Debt Settlement Companies
Please note, your creditors are under no obligation to negotiate with the debt settlement companies. Many creditors will not negotiate with debt settlement companies. Therefore, do not stop paying your creditors as the amount owed could go into collection.
Many financial institutions have standard credit card debt forgiveness options that are based on the amount of time the credit card balances have been outstanding. In most cases, the best way to negotiate a better payment plan might be to negotiate directly with your financial institution yourself.
Finally, there is a statute of limitations on credit card debt depending on your state, it can range from 3 years to 10 years. Consider this before entering any debt settlement programs as the debt may have already expired.
Finally, review the Fair Debt Collection Practice Act – The Fair Debt Collection Practices Act requires that debt collectors treat you fairly by prohibiting certain methods of debt collection.
Bankruptcy As Credit Card Forgiveness For Seniors
The overwhelming amount of debt required over a lifetime can lead to financial hardship where you have few options. However, bankruptcy should be considered the last resort. There are long-term effects on your credit score and your ability to obtain future credit. However, as a senior, you may not need to make any purchases that require good credit. If you plan to file bankruptcy the need to go back into debt should be a non-starter.
However, if your car loan, credit card payments, mortgage payments, student loan debt, overdue utility bills, medical expenses, other debt payments, and the many calls from collection agencies are beyond your fixed income then this option should be considered. Please consult a bankruptcy lawyer as you will need counseling to navigate the bankruptcy courts. Bankruptcy laws are varied from state to state so you will need legal advice to navigate the best choice when filing for bankruptcy for your outstanding debts.
If you file Chapter 7, all non-exempt assets considered property will be liquidated to pay off all debt. Hence, any property, such as second homes and new or expensive cars will be sold. Please note that alimony, child support, and most student loans will not be forgiven. The bankruptcy will remain on your credit score for ten years.
If you file for Chapter 13 bankruptcy, a payment plan lasting a few years will be established to pay off the unpaid debt. All assets remain intact and foreclosure proceedings are stopped. This bankruptcy will remain on your credit score for about seven years.
Debt Relief Programs for Seniors
There are government assistance programs for older Americans if money is tight because they are now living on social security benefits. Social Security checks comprise 37% of past earnings, on average, for elderly beneficiaries, according to the Social Security Administration.The average Social Security Check is about $1,644 or about $19,370 per year.
Government programs may help seniors with their basic needs and reduce their overall expenses and may be governed by state law.
U.S. Department of Housing and Urban Development (HUD)
HUD could be an option to find affordable housing. Section 8 Housing is a housing choice voucher program that allows very low-income housing families to choose and lease or purchase safe, decent and affordable privately-owned rental housing. Click here for the voucher program fact sheet.
Senior Citizen Housing
Seek housing that caters to seniors by using apps that allow you to select senior apartments. For example, Apartments.com, seniorliving.org, and seniorhousingnet.com. When searching on the internet for housing you can plug in the desired location, the price range you can afford, the number of beds needed, type of housing i.e., apartment, house, condo, and under lifestyle you can select senior housing. This is just one example of how you can search. Each website will vary slightly but each allows you to choose senior living as an option.
Moving In with A Friend Or Family Member
If your finances do not allow you to live alone, the best option may be to move in with a family member or friend. This will allow you to share expenses and afford you a stable home.
Finally, seniors can also seek assistance from local charities, community organizations, and religious institutions that may offer financial assistance. Such as Meals on Wheels, Independent Transportation Network, Second Wind Dreams
Supplemental Nutrition Assistance Program (SNAP)
SNAP provides nutrition benefits to supplement the food budget of needy families so they can purchase healthy food and move towards self-sufficiency.
There are special rules for the elderly or disabled to qualify for the SNAP program. You must apply in your state to determine eligibility. Eligibility is based on the application criteria of your state. Click here for the special rules for the elderly or disabled. Seniors must apply in the state where they currently reside and meet all requirements including resource and income limits.
The Low-Income Home Energy Assistance Program (LIHEAP)
TheLow Income Home Energy Assistance Program (LIHEAP)helps keep families safe and healthy through initiatives that assist families with energy costs. LIHEAP provides federally funded assistance to reduce the costs associated with home energy bills, energy crises, weatherization, and minor energy-related home repairs. Seniors are also able to participate in this program to help the elderly stay warm in the winter and cool in the summer.
Medicare Savings Program
Seniors can receive help from their state paying Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) through a Medicare Savings Program.
Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. Part B coverscertain doctor’s services, outpatient care, medical supplies, and preventive services. If you qualify, Medicare Savings Programs might also pay your Part A and Part B deductibles, coinsurance, and copayments. Hence, to qualify for a Medicare Savings Program, you must have income and resources below a certain limit. Visit Medicare.gov for more information.
Adjust Your Lifestyle Before You Retire
Before you retire create a retirement budget. Learn more by reading Can I Retire at 60 with $500K (Yes and I can show you how) for more details. There is a sample budget to help you. Review all your current bills and begin to determine what bills can be eliminated and which bills will need a Debt Repayment Strategy. Hence, now is the time to begin adjusting your spending habits and get a handle on your existing debts. Review your retirement plan which should include all your investments, downsizing, and relocation.
Forbes has created a listing of the best places to retire. If you can relocate and/or downsize to a cheaper location this should be considered. This study is based on housing costs and taxes, health care, air quality, crime, climate change, and natural hazard risk. This could dramatically improve your quality of life and your financial situation.
Social Security Estimates
Everyone should at some point before they retire get an estimate of their social security benefits. This is a must for creating your retirement budget. If you haven’t already gone to ssa.gov to create an account to check eligibility for benefits, plan retirement, apply for benefits, and sign up for Medicare. You need to sign up for Medicare three months before you turn 65 to avoid late enrollment penalties. After you apply, you can check your application or appeal status and appeal a decision made by Social Security.
Please note that the longer you wait to collect your social security the more your benefits can increase. Holding out to 67, which is considered full retirement, will net you more than at age 62. Waiting until 70 to collect rather than 62 will increase your benefits by 77%. However, I caution you to calculate the amount of money lost by not taking social security benefits for 8 years. It is money left on the table.
Retirement Savings
If you were able to take advantage of a 401k offered by your employer, invest in an IRA, or have a pension all these funds should be included in your budget. At the age of 72, you will have to begin taking the Required Minimum Distribution (RMD) from your retirement savings accounts. This additional cash flow can be spent, saved, used to pay off any remaining balance from credit or medical expenses, or reinvested. Consult a financial expert to determine what is the best way to use the funds based on your financial situation.
Working Longer
Working longer may be an option for some. However, ageism, health, and opportunities may prohibit your ability to work beyond the retirement age. However, if you are able, please consider working longer to improve your financial situation before you retire. You can also consider side hustles and part-time positions.
Please be advised that this is solely for informational purposes. Please consult a financial advisor, credit counselor, lawyer, or any free consultation on debt relief to address your unique situation.
Steps for Credit Card Debt Forgiveness for Seniors
- Know how much debt you owe
- Consult the Fair Debt Collection Practice Act
- Know the Statue of Limitation on your debt
- Speak with your creditors first
- See if there are any financial products that can help you i.e., personal loan, HELOC
- Seek professional help from a Credit Counselor or Debt Settlement Company
- Bankruptcy – Consult a Lawyer
- Seek government programs to help reduce expenses
- Create a retirement budget before you retire
- Consider downsizing and/or relocating
- Know and understand your financial situation before you retire
Additional resources
How to Manage Credit Card Debt
Debt Free is the New Rich
Living Stingy
What is the Purpose of a Budget
Last of the Boomers
