You should be enjoying the fruits of your labor in your later years, not worrying about how to pay back debt. Unfortunately, too many seniors find themselves with high levels of debt and uncertainty about their future.
If you are in this situation or heading that way, consider these steps to reverse your slide into debt.
Analyze Your Cash Flow – The first challenge of managing your debt is to stop it from growing. (Our government may not have figured that out yet, but you can do better.)
Take a hard look at your spending and look for discretionary purchases to cut. If you do not have a budget, make one. Take into account any short-term changes in income or expenses so you can realistically assess the situation.
Prioritize the Debt – If you have more than one source of debt, prioritize them so you can pay down the most damaging debt first.
Unless one of the sources has a catastrophic downside to delaying (such as eviction), address the debt with the highest interest rate first. Usually this is credit card debt, unless you have taken out a high-interest payday-type loan (or been stuck with one).
Pay the minimum on other debts and as much as possible on the high-interest debt until it is paid off, then move on to the debt with the next-highest interest.
Debt consolidation may work if you can find a single loan with relatively low interest to pay off other high-interest debts, but make sure you take all associated fees and loan costs into account first.
Seek Income – Extra income can go a long way to cutting your debt. Consider looking for part-time work, or see if there are work assistance programs available for seniors in your area – but be careful that you do not jeopardize your Social Security or other benefits with the income increase.
You may also consider selling certain items or holding an overall garage sale. You have likely acquired a lot of stuff over the years, and a garage sale can simultaneously de-clutter your home while also providing needed income.
If you have equity in your home, you can consider home equity loans or reverse mortgages – but be careful. With a home equity loan, you are just swapping other forms of debt for another, hopefully more manageable one; with a reverse mortgage, you are effectively selling your house back to the bank in small increments. Seek professional advice before going down either of these paths.
Look for Counseling Options – Do not let pride get in the way of asking for help, but be careful about who you ask. Not all debt relief companies are legitimate, and some may leave you worse off than when you started.
The National Foundation for Credit Counseling (www.nfcc.org) is a great resource for finding credible counseling help. With a solid plan in hand after counseling, you may be able to negotiate a reasonable payment schedule with your creditors.
Ultimately, your debt situation may be bad enough that bankruptcy is the only option – but keep that as a last resort. You will be unable to get credit or loans for a long time (generally seven years), and you may lose benefits and other assets as a result.
The best way to manage debt is to avoid it in the first place. Proper budgeting and spending practices can reduce the likelihood of crippling debt. Be very wary of potential scams, and avoid co-signing loans or credit cards – even though you mean well, you are very likely to end up with debt, because there is a reason a co-signer is needed.
We hope that your debt situation will be resolved, and you can go back to the truly important activities for seniors – like spoiling grandchildren, filling them full of sugary snacks, and handing them back to their parents.