Struggling with a large debt balance is no way to spend your elder years. And yet, many seniors in the U.S. are doing just that. More than one-third (34.2%) of senior households carry credit card debt and nearly 30% have outstanding housing debt with a median balance of $68,500. High debt balances are troublesome for the gainfully employed, because they rack up interest charges and squeeze budgets. But for the senior who doesn’t get an annual raise or profit-sharing bonus, debt is more than troublesome — it can be financially devastating.
Even worse, high debt balances can be bad for your health. According to a survey from the National Council of Aging, credit counselors for the elderly regularly encounter seniors who forgo home or car repairs, skip their medications, and even miss meals to save money. Any one of those choices can lead to injury or worsening health — and, ultimately, increased medical costs. If debt is causing you to consider choices that put your health at risk, it’s well-past time to take action.
Below are nine moves you can make to pay down, restructure, or get rid of your financial debt.
Seniors: How to pay down debt
1. Create a budget
A budget helps you identify and address the underlying issues that might be causing your debt. There’s only one root cause for having too much debt: it happens when you spend more than you make. A budget lists your income and your expenses for each month, quarter, and year. It shows you where your money goes and, specifically, how much you’re spending on debt relative to your essential living expenses. That ratio is useful because it quantifies how dire your situation really is. For example, if your minimum debt repayments not including mortgages are more than 15% of your monthly income, it will be difficult to repay those accounts, even with a solid budget. You may need to explore debt consolidation or even bankruptcy. Likewise, if your mortgage payment is more than 30% of your monthly income, it might be time to downsize your home.
If you’re not confident in your budgeting skills, find a free class to show you the ropes. Skillshare has some options if you’re comfortable learning online. You can also reach out to your local senior center and ask if there are any in-person classes or workshops available nearby.
2. Have a pay-off plan
There are two schools of thought on how to get out of debt quickly. One approach is to pay more on your highest-rate debt initially, while making minimum payments on everything else. This helps to manage your ongoing interest charges. But you may choose instead to focus on the smallest debt balance first. That would allow you to eliminate an entire monthly payment quickly, so that you could increase repayments on your other accounts.
Pick the approach that feels right and stick with it.
3. Trim spending and increase repayments
Once you define where your money is going, you can identify any opportunities to cut back. Admittedly, these may be limited if you’re already clipping coupons, creating meal plans from the supermarket sale flyer, buying generics, and shopping thrift stores. But you could also shop for cheaper car insurance, a more affordable smartphone plan, a lower-priced Medicare Advantage plan, or an inexpensive streaming service that would replace your pricey cable subscription.
Add up any amounts you save on these expenses and increase your debt repayments by the total.
4. Reach out to charitable organizations
There are organizations that offer financial help for seniors. It doesn’t often come in the form of debt relief for seniors specifically, but you might qualify for free meals, help with housing and utility bills, or assistance with healthcare expenses. Some organizations to contact are:
- Meals on Wheels: Delivers low-cost or free nutritious meals for seniors. Each visit usually includes a home safety check, too.
- Child and Adult Care Food Program (CACFP): Provides meals and meal reimbursements to eligible kids and seniors.
- Eyecare America: Provides no-cost eye exams for seniors.
- Health Center Program: Delivers healthcare services, health education, and transportation regardless of patients’ ability to pay.
5. Increase your income
It isn’t an option for every senior but finding a way to increase your income can be a game-changer with respect to debt repayment. Here are three ideas to consider:
- If your health allows it, reach out to the Senior Community Service Employment Program (SCSEP). This organization trains low-income, unemployed seniors and helps them find part-time jobs.
- The gig economy presents many opportunities for work on your own schedule. You can shop groceries for Instacart, deliver food for Uber Eats, or transport packages for Amazon, for example.
- Could you turn your favorite hobby into a money-maker? If you are crafty, you could make jewelry or home décor items and sell them on Etsy. If you like to write, you could start a blog or offer freelance writing services on Upwork or Fiverr.
6. Restructure your debt
If you’ve been searching online for financial assistance for seniors or financial assistance for elderly individuals, you’ve likely come across companies that offer to restructure your debt. Unfortunately, you have to view these offers with a fair amount of skepticism. They’re often fee-laden debt consolidation loans, rather than the miracle solutions they’re pitched as.
A proper debt restructuring plan consolidates all of your credit balances into one, low-rate loan, with clear and understandable terms. An outside company may be able to provide that, but you might also have the assets to do it on your own. Here are five options for restructuring your debt using your own assets:
- A cash-out mortgage refinance. Mortgage loans generally carry the lowest interest rates of any consumer debt. If you have equity in your home, you could refinance the home for a higher amount than what you owe today and use the extra proceeds to pay off your debt. This option only makes sense when the refinanced mortgage payment is less than what you pay today in mortgage and debt repayments combined.
- A home equity loan in the amount you need to repay higher-rate debts. A home equity loan is a second mortgage. This works like a cash-out refinance, but you’d end up with two mortgage payments instead of one.
- Life insurance loan. If you have life insurance, you may be able to borrow against your policy at a competitive interest rate.
- Personal loan. If you have good credit, you may qualify for an affordable personal loan that would generate the cash you need to pay off your debt.
- Ask creditors for better terms. You can also simply ask your creditors for lower interest rates or extended payoff plans. This doesn’t always work, but it’s worth a shot.
If you take out any kind of loan to consolidate your debt, it’s critical that you don’t run up the credit cards or other debt balances later. Chop up any credit cards so you’re not tempted to keep spending.
7. Liquidate life insurance and home equity
You may be able to raise a sizable amount of cash, without incurring new debt payments, by liquidating your life insurance or your home equity. If you are over 65, you may be able to sell your life insurance policy for more than its cash value in a life settlement. The transaction would transfer the policy along with its death benefit, premiums, and cash value to a third-party buyer. In return, you get a lump sum payment that you can use to repay your debts. Note that this is usually a taxable transaction; remember to earmark some of the proceeds for your tax bill.
You can convert your home equity into cash with a reverse mortgage or by selling the home outright and buying something cheaper. In a reverse mortgage, the lender gives you a single cash payment or a stream of payments as a downpayment on your home equity. You can continue to live in the home and you don’t have to repay the funds until you move or pass away.
If you don’t mind moving, you could sell the home and buy something cheaper. That’s only a good option when the home’s value is much higher than your mortgage balance. Ideally, the sale would generate enough cash to repay your current mortgage and your other debts — with enough left to fund a new home with a lower mortgage payment.
8. Get credit counseling
Credit counseling is usually the last step debtors take before filing bankruptcy, mostly because the courts require it. But you may benefit from seeking credit counseling earlier on. A credit counselor helps you renegotiate your payment terms, provides financial education so you can stay out of debt in the future, and talks you through the option of bankruptcy as a potential solution. You can search for court-approved credit counselors on the U.S. Department of Justice website.
9. As a last resort, file bankruptcy
There are two forms of bankruptcy; Chapter 7 bankruptcy wipes away your debt entirely and Chapter 13 bankruptcy requires you to fulfill a court-approved repayment plan. To qualify for Chapter 7, you have to pass a “means test,” which assesses your ability to pay your debts with your disposable income. Chapter 7 may require you to give up your car or home, while Chapter 13 normally allows you to keep these assets if they’re included in your repayment plan.
Either form of bankruptcy will lower your credit score and make it more difficult to get credit later. Bankruptcy can remain on your credit history for up to 10 years.
Take action now
Debt is one of those problems that gets worse when you ignore it. Commit now to the first step of creating a budget — it’s easy and free. Then, let the numbers guide you to your next move. Your options include aggressive monthly payments, consolidation to lower-rate debt, full payoff via a life settlement or home sale, or bankruptcy.