Debt Relief Options for Senior Citizens

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. It can make it especially challenging to continue saving for retirement if you haven’t yet reached the end of your working years. 

When managing a significant amount of debt, senior citizens may often have to choose between paying a large balance and saving for retirement. Without enough retirement savings, making ends meet becomes harder, especially when you get into the later retirement years of your 70s and beyond.

Living on a Fixed Income

For older adults who are already retired and relying primarily on a fixed monthly income from Social Security, it can be even more challenging to make debt payments while paying for regular living expenses.

Seniors may also face serious health issues as they age, which can dramatically increase their medical expenses. This makes it crucial to retire with adequate savings.

For many retired adults, covering rising living expenses while repaying debt on a fixed income is challenging. They often use credit cards to cover the shortfall. As of 2024, the average credit card debt for baby boomers was $6,754. With high-interest rates and unexpected charges, debt can quickly become unmanageable.

Thankfully, debt relief for senior citizens comes in many forms. From 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.  

Debt Relief Options for Seniors

Whether you’re a senior struggling with credit card debt, medical bills, or other forms of debt balances, there are several options available to pay them off. Regardless of the option you choose, avoid taking on any new debt to prevent getting caught in a cycle of missed and late payments, coupled with high interest charges.

Managing and Reducing Debt

There are many ways to manage and reduce debt. Budgeting is often the best place to start, as it provides a clear picture of your income and expenses, and how much you have available each month to allocate toward repayment.

For homeowners, one option to pay off debt is with a reverse mortgage. If you have enough equity in your home, a reverse mortgage can be a viable option. 

Or, consider downsizing to a smaller home. You can use the equity proceeds from the sale of your first home to purchase a smaller house and use the difference to pay off your debts.

Government Programs 

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.

If you need help affording nutritious foods, take advantage of programs like the Supplemental Nutrition Assistance Program (SNAP) and the Senior Farmers’ Market Nutrition Program.

All of these senior financial assistance initiatives can help you save a considerable amount of money each month, which you can use toward debt repayment.

Credit Counseling

Often a first step for those seeking debt relief, credit counseling helps seniors determine the right course of action for paying off debt. Many nonprofit organizations offer services at a low cost or free to qualifying seniors.

Credit counseling can help you take control of your debt while working toward financial goals like 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 persuade creditors to waive charges or reduce your payments.

Debt Consolidation

Debt consolidation involves borrowing a new loan to pay off your existing debts. You’ll then have a single monthly payment, simplifying your expenses.

If your debts are unsecured, debt consolidation is a viable option to consider because it can lower your monthly payments. It can also 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, including a debt consolidation loan, a home equity line of credit, and a balance transfer credit card. It's important to secure a new loan at a lower rate of interest than what you’re currently paying on your existing debts.

Bankruptcy for Seniors

If you’re unable to pay your debt and are feeling overwhelmed, filing for bankruptcy as a senior citizen may be an effective way for older adults to relieve debt after trying other options without success.

There are two main types of bankruptcy to file as an individual, including:

Chapter 7 Bankruptcy

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 debt discharged (primarily unsecured).

It’s important to note that the negative after-effects of filing Chapter 7 bankruptcy will stay on all three of your credit reports for up to ten years. This can make it very difficult to qualify for new loans or credit lines, especially during the first four to five years after your bankruptcy is finalized.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves restructuring your debts into a court-approved repayment plan lasting three to five years. If you complete the repayment successfully, you’ll likely retain your property and most of your financial assets.

Similar to Chapter 7, the after-effects of filing for Chapter 13 will stay on all three of your credit reports for a minimum of seven years.

Debt Forgiveness Programs

You may have the chance to reduce your debts if you qualify for debt forgiveness programs. For example, many healthcare providers offer debt forgiveness programs when you meet their eligibility requirements. If you owe significant medical bills and are facing financial hardship, check to see if you qualify for assistance.

Seniors facing tax debt may also 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.

Debt Settlement

Debt settlement is the process of negotiating with your creditors to accept a lump sum for less than the amount you currently owe. In exchange for this lump-sum payment, lenders will often forgive your remaining debt, allowing you to start fresh.

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.

Consider working with an experienced debt settlement company to handle these often complex negotiations on your behalf.  

Debt Relief Resources for Seniors

When seeking debt relief as a senior, it’s important to do your research and work with trusted organizations and agencies. Review the following organizations to find a list of trusted agencies in your state:

• Financial Counseling Association of America (FCAA)
• National Foundation for Credit Counseling (NFCC)

If you’re unsure of elderly debt collection laws or dealing with calls and harassment from debt collectors, HELPS is a nonprofit law firm and charitable organization that educates and protects older adults who struggle with debt.

“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.

Senior Citizen Debt Relief: Your Next Steps

Paying off debt as soon as possible can help older Americans in their retirement. The savings offered through debt relief options can provide the cushion they need to live a financially comfortable life while living on a fixed income.

Older adults can also benefit from free government money for seniors over 60 through a wide range of federal and state programs.

Don't let debt stop you from living an abundant financial life in your golden years. Consider your options and make a plan to get out of debt.

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