Debt Relief for Senior Citizens: All the Options Available
10 MIN READ
Published December 14, 2023 | Updated February 26, 2024
Debt is a bigger issue for senior citizens than it is for those who are younger, largely due to how debt can interfere with retirement plans. Those who are already retired and living on a fixed income may find it even more difficult to resolve debt.
Thankfully, debt relief for senior citizens comes in many forms. From simple solutions like budgeting, downsizing, debt consolidation, and debt settlement to drastic measures like bankruptcy, it’s possible to become debt-free so you can enjoy your retirement years without financial worries.
Why Is Debt Hard to Deal With as a Senior?
Debt repayment can often make it difficult for you to make the most of your retirement savings during your golden years, and it can make it especially hard to continue saving for retirement, if you haven’t quite come to the end of your working years yet.
When dealing with the monthly cash-flow pressures involved with managing a significant amount of debt, you may often have to choose between paying off debt and saving for retirement. Without enough retirement savings, it can quickly become very difficult to make ends meet, especially when you get into the later retirement years of your 70s, 80s, and beyond.
For older adults who are already retired and relying primarily on fixed monthly income from Social Security, it can be even more difficult to make debt payments while paying for regular living expenses. You may also face serious health issues as you age, which can dramatically increase your medical expenses. This makes it even more important to have adequate retirement savings.
For many retired older adults, it's difficult to cover all their steadily increasing living expenses along with debt repayment on a limited income, and they often use credit cards to cover the shortfall. According to a recent data survey, the average credit card debt for baby boomers in 2023 was $6,601. With high-interest rates and new monthly charges, debt can quickly become unmanageable.
Debt Relief Options for Seniors
Whether you’re struggling with seniors’ credit card debt, medical bills, or other forms of debt, there are several options available to pay it off. Regardless of the option you choose, we recommend avoiding taking on any new debt because it can make it even more difficult to get out of the debt cycle.
Manage and Reduce Debt
There are many ways to manage and reduce debt. Budgeting is often the best place to start so you get a clear picture of your income and expenses and how much you have available each month to pay toward repayment.
For homeowners, one option to pay off their debts is with a reverse mortgage. If you have enough equity in your home, a reverse mortgage can be a viable option for some.
This would also be a good time to consider downsizing to a smaller home. You can use the equity proceeds from the sale of your first home to purchase a smaller home and use the difference to pay off your debts.
While the federal government doesn’t have any specific debt relief programs for senior citizens, it does offer several senior assistance programs that can make your life easier. For example, you can get affordable health insurance through Medicare to reduce your healthcare expenses.
You can also sign up for HUD’s Supportive Housing for the Elderly Program if you’re a low-income senior. The program offers rental assistance and services that help older adults live independently.
Take advantage of programs like the Supplemental Nutrition Assistance Program (SNAP) and the Senior Farmers’ Market Nutrition Program if you need help affording nutritious foods. All of these senior financial assistance programs can help you save a considerable amount of money each month, which you can use toward debt repayment.
There are several non-profit organizations that provide debt relief for senior citizens. Qualified counselors can help you create a repayment plan and pay off your debts.
Credit counseling is often the first step for those seeking debt relief, as it helps them determine the right course of action for paying off debt. Since the services are provided for free, we recommend taking advantage of it.
Debt consolidation involves borrowing a new loan to pay off your existing debts. You’ll then have a single monthly payment, which can simplify repayment. If your debts are unsecured, this is a good option to consider because it can lower your monthly payments and help you save money if you have good credit and can qualify for a loan at a lower interest rate.
There are several ways to consolidate your debts, such as through a debt consolidation loan, a home equity line of credit, and a balance transfer credit card. The most important point to keep in mind is that your new loan should have a lower rate of interest than what you’re currently paying on your existing debts.
Credit counseling can be a good way of taking control of your debt and your financial goals, such as saving for retirement. A qualified credit counselor can also help you enroll in a debt management plan, should it be most appropriate for your situation.
With a debt management plan, you’ll make a payment to the credit counseling agency every month, which will then be distributed to your creditors. Your counselor may also be able to convince creditors to waive charges and/or lower your payments.
Bankruptcy for Seniors
If you’re unable to pay your debt and are feeling overwhelmed, filing for senior citizen bankruptcy may be a good way to get debt relief for senior citizens. There are two main types of bankruptcy that you can file for as an individual.
Chapter 7 bankruptcy can discharge most types of unsecured debts, such as medical debt and credit cards. However, you must be able to pass the means test to qualify for filing, and any of your non-exempt assets may be used to pay back your debts before you can have the rest of your (primarily unsecured) debt discharged. It’s important to note the negative after-effects of filing Chapter 7 bankruptcy will stay on all three of your credit reports for ten years, making it very difficult to qualify for new loans or credit lines, especially during the first 4-5 years after your bankruptcy is finalized.
Chapter 13 bankruptcy involves reorganizing your debts into a court-approved repayment plan that will require you to stick to them for three to five years. If you complete the repayment successfully, you’ll be able to retain your property and most of your financial assets. Similar to Chapter 7, the after-effects of filing Chapter 13 will stay on all three of your credit reports for a minimum of seven years.
Debt Forgiveness Programs
You may also be able to reduce your debts if you qualify for debt forgiveness programs. For example, many healthcare providers offer debt forgiveness programs if you meet their eligibility requirements. If you have large medical bills and are facing financial hardship, check to see if you qualify.
If you have tax debt and are in a tough spot, you may qualify for tax debt forgiveness through the IRS’s Offer in Compromise. However, you’ll only be able to qualify for this program if you have almost no assets and are financially insolvent.
If you have outstanding federal student loans, you may qualify for student loan debt forgiveness through several programs, such as the Public Service Loan Forgiveness program. President Biden has already approved $127 billion in student debt relief through a variety of acts signed into law. If you qualify, all or a significant portion of your loan may be forgiven.
Debt settlement is the process of negotiating with your creditors to accept a lump sum that is less than the original amount you currently owe. In exchange for this lump-sum payment, lenders will forgive the remaining debt you owe, and you can start fresh. You can work with an experienced debt settlement company like TurboDebt to handle these often complex negotiations for you.
If you’ve already missed loan payments for several months and don’t think you can pay off your entire debt, debt settlement can be a good way to save as much as 50% of your debt before fees if you work with an experienced company.
Debt Relief Organizations for Seniors
When seeking debt relief for senior citizens, it’s important to do your research and work with trusted organizations and agencies. If you’re looking for credit counseling agencies, here are two organizations where you can find a list of trusted agencies in your state:
“Senior citizens are often taken advantage of due to social perceptions related to limited financial knowledge or an over-trusting nature towards those posing as legitimate professionals,” cautions Brad Reichert, debt expert and founder and managing director of Reichert Asset Management LLC. He advises seniors to do background reviews on any firms they’re considering doing business with.
The Bottom Line on Senior Citizen Debt Relief
For many older adults, living with debt in retirement is something they never thought would happen. There’s no one-size-fits-all strategy when it comes to debt relief for senior citizens. However, there are many ways you can get help regardless of the type of debt you have or your financial situation.
For older Americans, it’s essential to pay off debt as soon as possible so they can continue saving for their retirement. Their retirement savings provide the cushion they need to live a financially comfortable life when their income shrinks after they retire.