Debt Relief for Older Adults

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.

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.

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.

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.

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:

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.

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.

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.