Debt Relief for Older Adults

Older adults have accumulated debt faster than any other age cohort over the past two decades, according to Federal Reserve data. But there are ways to dig out from under a pile of debt, including downsizing, budgeting, financial counseling and programs that provide debt relief or financial assistance.

Barbara O’Neill, Ph.D. CFP®, AFC®, CRPC®
  • Written by
    Barbara O’Neill, Ph.D., CFP®, AFC®, CRPC®

    Barbara O’Neill, Ph.D., CFP®, AFC®, CRPC®

    Certified Financial Planner™ professional, Accredited Financial Counselor™ and owner and CEO of Money Talk

    Barbara O’Neill is a personal finance expert with 41 years of experience working at Rutgers University. She is a Certified Financial Planner™ professional and an Accredited Financial Counselor™. Currently, she is the owner and CEO of Money Talk, where she writes, speaks and reviews content related to personal finance. In 2020, she authored Flipping a Switch, published in 2020.

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  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury, editor for RetireGuide.com

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.

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  • Reviewed By
    Toby Walters, CFA®
    Toby Walters, CFA

    Toby Walters, CFA®

    Chartered Financial Analyst and Paraplanner

    Toby Walters, CFA®, has over 25 years of financial research experience. With a knowledge and understanding of researching and analyzing financial data, he has developed a unique and experienced viewpoint on money matters. He has been a chartered financial analyst since 2003, and most recently a portfolio analyst and paraplanner.

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  • Published: August 9, 2023
  • Updated: September 6, 2023
  • 7 min read time
  • This page features 5 Cited Research Articles
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APA O’Neill, B. (2023, September 6). Debt Relief for Older Adults. RetireGuide.com. Retrieved March 5, 2024, from https://www.retireguide.com/retirement-planning/debt/

MLA O’Neill, Barbara. "Debt Relief for Older Adults." RetireGuide.com, 6 Sep 2023, https://www.retireguide.com/retirement-planning/debt/.

Chicago O’Neill, Barbara. "Debt Relief for Older Adults." RetireGuide.com. Last modified September 6, 2023. https://www.retireguide.com/retirement-planning/debt/.

Key Takeaways
  • Downsizing can free up cash previously spent on housing expenses — such as utilities, maintenance and taxes — to use for debt repayment.
  • Paying greater attention to household income and expenses, and following a budget, can also free up money to repay debt.
  • There are several debt reduction strategies, as well as debt relief and financial assistance programs, to help older adults repay debt.

Everyday Strategies for Navigating Debt as an Older Adult

Two tried and true ways for people of all ages to “find” money to repay outstanding debt are downsizing and budgeting. Both require proactive steps to spend less money, and the hardest part is often getting started.

But downsizing may be easier for older adults than others because many older adults find themselves with “too much house” during retirement if they become widowed or after their children are grown and launched. Older adults may already be motivated to move from, say, a four-bedroom house to a two-bedroom condo or apartment.

Budgeting may also be different later in life because many older adults have multiple income sources, such as Social Security, pensions and part-time work, as well as new expenses, such as Medicare premiums and increased medical expenses.

Downsizing

The goal of downsizing is to free up money that can be used to repay debt by reducing what is the largest expense for many retirees: housing.

For homeowners, the resulting savings includes payments for a mortgage, utilities, property taxes, homeowners’ insurance and home maintenance. In addition, the difference between the sales price of an existing home (minus sales expenses) and the cost of a new home can become a nest egg to use for debt repayment and/or future income.

Downsizing scenarios vary, so it is essential to “do the math” to calculate the potential savings, as well as the cost of moving elsewhere.

Lifestyle considerations like family visits and future housing needs such as mobility in a two-story home also need to be considered. This is often a good time to consult a financial advisor to explore various options, including a reverse mortgage to free up home equity without having to move.

Budgeting

A budget is a plan for future spending and saving. Successful budgets have positive cash flow (income greater than expenses) with money available to repay debt and/or save for emergencies and financial goals.

When cash flow is negative (expenses greater than income), people often borrow money from somewhere such as credit cards, loans and family to make ends meet. Budgeting is especially important for older adults because many live on fixed incomes and must, therefore, manage expenses carefully.

Key parts of a budget include income sources, fixed (and often essential) expenses such as housing, utilities and car loans; variable expenses such as food, gas, gifts and travel; and occasional expenses such as insurance premiums and property taxes.

The numbers should be realistic and based on actual spending for a month or two. Budgets also need to be reviewed and revised at least annually. A credit counselor can help prepare a workable budget. Look for one affiliated with a nonprofit agency that serves older adults.

Older adults face unique debt challenges as they have less time to recover from paying it off. In most instances, their income consists of Social Security and distributions from retirement accounts not being replenished. Fortunately, there are many sources available to help those struggling with expenses.
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Options To Consider for Larger Debts

Sometimes, people owe more money than simple budget tweaks — or even downsizing — can fix. Rather, they owe four-, five- or even six-figure sums. In this case, other debt repayment options may be needed. Below are 10 strategies for older adults to consider.

Debt Reduction Methods
Direct Negotiation With Creditors
This can work if someone has not fallen behind yet on payments. Creditors may be willing to lower interest rates, reduce payments or add overdue payments to the end of a loan contract.
Credit Counseling
Credit counselors can often negotiate debt concessions for their clients. In return, clients must often surrender their credit cards and incur no new debt.
Balance Transfer Credit Cards
This strategy will only work if the interest rate savings on switching from credit card A to credit card B is greater than the balance transfer fee.
Snowball and Avalanche Repayment
Both methods require “found” money to add to existing payments. The avalanche method pays off debts with the highest interest rate while the snowball method focuses first on small balance debts.
Debt Consolidation
This is a new loan to repay existing debts. It only works if there is interest rate savings, and the person does not charge up their credit cards again.
Debt Settlement
This is an agreement between a debtor and a creditor to adjust a debt owed in some way. A financial counselor can help debtors make informed decisions.
Debt Forgiveness
As the name implies, this is where debt is totally or partially forgiven. Professional advice is useful to assist with tax implications and other related issues.
Reverse Mortgage
Reverse mortgages allow people aged 62 and older to borrow against home equity and receive funds as a lump sum, monthly payments or a line of credit.
Voluntary Surrender
This is where someone unable to make payments on a secured loan (such as a car) returns the secured asset or obtains the creditor’s permission to sell it.
Bankruptcy
There are two types: Chapter 7, where assets of value are surrendered to a court trustee to repay debts and Chapter 13, where people repay debts with future income.

How To Create a Debt Management Plan

A successful debt management plan starts with knowing exactly how much money is owed. Create a table with the following information: names of creditors, balance owed, monthly payment amount and the annual percentage rate (APR) on each debt.

See the sample template below:

Creditor NameBalance OwedMonthly PaymentAPR%

Once your outstanding debt is tallied, develop a plan to repay it. For example, look for ways to reduce expenses, use freed up cash to avalanche or snowball debt, contact creditors for loan concessions or seek credit counseling services.

Most importantly, stick to the plan and regularly review and revise it. It is also important to address the root causes of a debt problem and avoid taking on additional debt. Seek professional assistance as needed.

How To Evaluate Your Current Retirement Plan

Programs for Debt Relief

Programs are available to assist older adults with debt. A good place to start looking in every community is the area agency on aging, also generally known as the office of senior services, which coordinates local programs for older adults like Meals on Wheels and makes referrals to government and nonprofit agencies.

There is also 211, which is like 911, except it takes calls for human services referrals instead of emergencies.

Use the Eldercare Locator and 211.org  to locate resources for debt repayment and financial assistance. Several types of programs are described below.

Debt Assistance Programs

Programs that help older adults lower expenses for housing, utilities, food, health insurance and taxes for debt repayment vary by state and locality. Below are 10 commonly found programs that can be accessed directly or through referrals by area agencies on aging and/or 211.

10 Programs and Services for Debt Assistance

  1. Low-Income Home Energy Assistance Program (LIHEAP)
  2. Meals on Wheels and congregate meal sites
  3. Medicare Extra Help program
  4. Property tax relief
  5. Rental assistance
  6. Senior legal aid services
  7. State Health Insurance Assistance Program (SHIP)
  8. State prescription assistance programs
  9. Supplemental Security Income (SSI)
  10. Tax Counseling for the Elderly (TCE)

Frequently Asked Questions About Debt Relief for Older Adults

Is there an age limit on debt consolidation?
There is a minimum age limit of 18, but no specific maximum age limit. However, other factors, such as a debtor’s income and credit score, will apply. Some older adults aged 62 and up use a reverse mortgage to consolidate debt.
What is the most common debt type among older adults?
Two significant areas of debt for older adults are medical expenses and credit cards. In addition, about 30% of older adults owe money on a mortgage, home equity line of credit or both, and the median amount owed was recently $68,500.
How can avoiding debt impact your retirement?
The less debt older adults have, the more financial “breathing room” they have to pay living expenses and simply enjoy their retirement years without constantly worrying about making ends meet.
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Last Modified: September 6, 2023

5 Cited Research Articles

  1. Moise, I. (2023, July 17). They Had Great Credit Scores. Then They Retired. Retrieved from https://www.wsj.com/articles/credit-score-retirement-e624572f
  2. Get the Facts on Senior Debt (2023, June 30). National Council on Aging. Retrieved from https://ncoa.org/article/get-the-facts-on-senior-debt
  3. Biggest Expenses for Retirees- and How To Minimize Them! (2021). Vision Retirement. Retrieved from https://www.visionretirement.com/articles/largestexpensesretirees#
  4. O’Neill, B. (2020). Flipping a Switch: Your Guide to Happiness and Financial Security in Later Life. https://www.amazon.com/Flipping-Switch-Happiness-Financial-Security/dp/1620236869
  5. O’Neill, B. (2018). Small Steps To Pay Off Consumer Debt. Rutgers Cooperative Extension. Retrieved from https://njaes.rutgers.edu/sshw/message/message.php?p=Finance&m=376