No matter the location, interests, or career history, a significant number of seniors find themselves entangled in financial debt. According to recent data from the National Council on Aging (NCOA), more elderly individuals are entering retirement burdened with substantial debt loads compared to previous generations. Nate Tsang, CEO of WallStreetZen, underscores this trend, noting that 60% of seniors currently carry debt, a figure expected to rise amidst economic uncertainties and inflation.
Brad Biren, Esq., COO of IQ MOP, a financial education group, confronts this reality daily in his work specializing in crisis Medicaid planning. However, Biren emphasizes that debt should not be automatically viewed as negative. He reframes debt as an underutilized opportunity, stating, “Debt is not simply a negative aspect; it serves as a vital component in establishing financial history.” Nonetheless, Biren cautions against excessive monthly high-interest debt, asserting that it constitutes a more accurate definition of financial indebtedness in older age.
The prevalence of debt among seniors is a multifaceted issue. Factors contributing to this phenomenon include increased living expenses, support for adult children, and unforeseen divorce-related financial strains. Moreover, Mary Kate D’Souza, an attorney and co-founder of Gentreo, highlights the alarming rise in financial exploitation schemes targeting seniors, exacerbating their debt burdens.
Medical expenses stand out as a primary cause of financial distress among seniors. Jay Zigmont, a certified financial planner and founder of Live, Learn, Plan, underscores the impact of medical debt, compounded by late fees and billing errors. He emphasizes the challenges faced by seniors with fixed incomes and fluctuating expenses.
Despite these challenges, there exist strategies for debt relief tailored to seniors:
- File for bankruptcy
The two most common types of bankruptcy are Chapter 7 and Chapter 11, explains Zigmont. “In a Chapter 7 bankruptcy, everything a person owns is ‘liquidated’ — aka sold — to pay down the debts,” he says.
A Chapter 11 bankruptcy, he explains, just reorganizes a person’s debt and sets a plan and schedule for them to pay it back. “Keep in mind that not all debt can be discharged in bankruptcy — including IRS and student loan debt,” he adds.
Pros and cons: The potential perks include the court either discharging or reorganizing the debt, and debt collectors have to stop contacting your older loved one.
But according to Zigmont, bankruptcy should be a last option, because it can cause a big hit to your credit. This takes seven years to come off.
- Enroll in a loan consolidation program
This can involve your senior loved one taking out a loan to pay down their existing debt or just paying a company to “consolidate” their debts. Most companies that offer consolidation charge a fee for them to put all debts together, negotiate them and then a senior makes one payment to them, explains Zigmont.
The way this works: The consolidation company handles the debts at the outset, allowing the older adult to make one simple payment.
Pros and cons: This is a very enticing option with one giant pitfall — it kills a senior’s credit score, says Biren. “In a loan consolidation, you are opening a line of credit for the exact amount you owe,” he notes. “That one consolidated account will be a behemoth of debt with little credit to keep [a senior’s] credit score buoyant.”
Zigmont says this option is basically moving your debt around, and you may be better off negotiating with your senior loved one’s debtors directly. While in consolidation, many debts may go unpaid and also have a negative impact on a person’s credit report, he adds.
To get started, Zigmont suggests looking for local, non-profit organizations. Then, make sure you and your older loved one understand the fees and exactly what you’re getting for whatever you’re paying.
- Take out a reverse mortgage
If your senior loved one’s house is paid off or mostly paid off, they may be able to get a percentage of their house’s equity out. This percentage changes with age and a variety of limits, according to Zigmont. “Depending on the structure of the reverse mortgage, you may get a lump sum out or payments over time,” he adds. The mortgage is then paid off when the owner eventually sells the house.
Pros and cons: The main perk is that a senior will get money immediately. The downside is that they are paying fees and interest to get that amount, and their house will be sold to pay for it, says Zigmont.
There are many reverse mortgage companies, so start by asking your local bank and then compare options.
- If the debt is medical, write a financial hardship letter
When a patient composes a letter explaining their financial hardships, they can potentially negotiate down medical bills for pennies on the dollar, according to Biren. “Never pay full price for major healthcare bills that are already egregiously padded,” he says. “In fact, most times, the balance may be outright forgiven.”
Pros and cons: The hospital or medical provider may be willing to let your senior loved one apply for “charity care” or lower the amount owed. However, Biren notes that the letter can also help to establish a pretense for their lack of credit worthiness so the balance could be sent in whole to a collection agency upon receipt. “That is not common by any means,” he says. But it’s another reason to choose your words wisely.
To get started, put together a moving letter but it must be honest. “Do not deceive, defraud, or threaten,” he says.
- Negotiate debt forgiveness
Old debt — typically defined as over 90 days unpaid — can be negotiated, according to Zigmont. Debt collectors buy this debt for pennies on the dollar and then spend their time trying to get it from a person, he explains. So they may be willing to accept less in order to get something.
Pros and cons: Although your older loved one can end up paying less to settle debt, they need to have the cash in hand to immediately pay the agreed upon sum. They — or you, on their behalf — also have to negotiate directly with debt collectors, which he notes can be challenging.
But overall, this is Biren’s favorite option, if you have the money on hand.
Navigating debt in later years requires careful consideration of these options and seeking professional guidance. By addressing debt burdens proactively, seniors can attain financial stability and peace of mind in their retirement years.