The cherry on top of the American Dream sundae is a retirement complete with a paid-off mortgage, travel and time in the sun, and a lack of worry about careers and money. It’s a high point, however, that’s being reached by fewer and fewer seniors.
Instead, growing amounts of debt and more senior citizens living near or below the poverty line are trends on the rise. At the same time, the percentage of the U.S. population of adults aged 65 and older has nearly doubled in the last six decades and is expected to reach 22% by 2050.1
This is why debt forgiveness for seniors is paramount to understand and navigate, especially for those grappling with bad credit, mounting medical debt, and lingering student loans.
The Growing Debt Issue for Seniors
More adults are taking on student loan debt for children and grandchildren, buying larger homes, and falling prey to financial scams later in life—all of which lead to debt carried into senior years and make debt forgiveness for seniors a critical issue.2 Currently:
- The average total debt for senior households in 2016 is more than 2.5 times what it was in 20013
- 41% of senior citizens aged 65–84 years old hold revolving credit card debt to supplement spending4
- 15 million adults 65 and over have incomes below 200% of the federal poverty level5
Alongside low incomes, debt burdens often lead seniors to:
- Skip or halve prescription medications
- Reduce food intake, resulting in nutrition deficiencies leading to poorer health
- Forgo home and car repairs, thereby increasing the risks of accidents and falls
These cost-trimming methods backfire in the long run, further increasing the healthcare cost burden for seniors.
10 Debt Forgiveness Options for Seniors
There are many options available to seniors struggling with debt. Consider:
Before figuring out how to pay down outstanding debt, you need to know what you have coming in and where it goes. A budget that tracks your spending can help identify savings opportunities and communicate your needs with advisors, creditors, and lenders. This is particularly crucial for those seeking financial help and struggling with loan payments.
A budget breakdown by the Bureau of Labor Statistics (BLS), adjusted for seniors over age 75, suggests a spending plan of5:
- Housing 32%
- Healthcare 16%
- Transportation 14%
- Food 13%
- Other 25%
When you take all your income and monthly expenses into account, how is your money currently split? How much of the “other” category is going toward debt repayments?
If you’re just getting started with budgeting, you can try a free or low-cost budget app or spreadsheet template and consult resources such as the Consumer Financial Protection Bureau’s guide to create and stick to a budget.7
If your budget shows more money going out than coming in, at least one of those numbers needs to change. Downsizing for seniors has the potential to change both by:
- Reducing your utility, tax, and mortgage or rent expenses in a smaller home
- Providing income injections through the sale of property or belongings.
Before moving, take an inventory of your belongings to see what you no longer use, need, or want. Consider online auctions or marketplaces, local consignments, or a yard sale to bring in cash that can pay down debt.
#3: Credit Counseling
If you need help figuring out where to start and deciding what actions to take, check into credit counseling. Note, many companies advertise debt consolidation services, but it can be difficult to figure out which are useful and which lead to more costs than solutions.
Credit counselors are experienced, certified consumer money management professionals who are usually aligned with a nonprofit organization. They may offer a combination of free and low-cost services, such as:
- Webinars, workshops, and online resources
- One-on-one meetings to review your situation and provide personalized advice
- Help set up a budget
- Direct negotiation with your creditors to reduce fees, rates, or balances
- A debt management plan to figure out how much and when to repay each debt
- Debt consolidation through the credit counseling organization
To get started, use the links and directions in the Consumer Financial Protection Bureau’s credit counseling article to make sure you connect with a qualified, approved professional in your state.8
#4: Debt Consolidation
Debt consolidation refers to rearranging multiple debts in order to make a single monthly payment instead of multiple payments. It can be done through a for-profit business, a nonprofit credit counseling organization, or independently by taking out a new loan and paying off multiple debts with it. For those exploring debt consolidation refinancing, it’s important to understand how this process can help simplify your financial situation.
#5: Debt Settlement
While lenders aim to recoup all of their money (plus a hefty profit with interest and fees), at some point, they may be willing to acknowledge that some is better than none for unsecured debt. You can call or write directly to creditors and collection agencies with a proposal to settle a debt for as little as half of its balance. You’ll need to:
- Be patient, courteous, and expect to spend time getting to the right decision-maker
- Honestly explain why you aren’t able to repay the full amount
- Have money to either pay off the proposed balance or pay per a new agreement
A possible downside is a lender deciding you’re a bad bet for repayment and selling your debt to collections rather than dealing with you directly, which can negatively impact your credit score. Loan forgiveness may also be an option for some types of student loan debt, especially if you work in public service.
#6: Reverse Mortgages
Homeowners with a significant amount of equity built up can secure a reverse mortgage that only comes due after they move out of the home or after the death of the last borrower.9 For seniors considering this option, it’s essential to be aware of key facts about reverse mortgages.
The plus side is the ability to choose a loan delivery structure: tax-free monthly income, an upfront payment, or a combination of the two. On the downside:
- Lenders can foreclose if you don’t pay taxes, insurance, HOA fees, and house repairs
- Reverse mortgages are only available to adults age 62 or older
- There are predatory reverse mortgage lenders you’ll need to carefully avoid
#7: Sale-Leaseback Programs
A sale-leaseback combines the sale of your home with a switch to renter status. You can continue living in your home as long as you comply with the lease. You’ll get:
- The opportunity to convert equity to cash
- Freedom from property tax and homeowners insurance
- A landlord who handles the cost and hassle of covered repairs and maintenance
With a reputable sale-leaseback program, you may also secure:
- A multi-year lock on an agreed-upon rent rate
- A quick, simple closing process
- A clear understanding of how future rent increases will be calculated and limited
#8: Balance Transfer Credit Cards
Juggling balances and applying for new credit cards might be part of what got you into debt, but it also has the potential to help conquer high-interest debt. If you can’t consolidate debt through a secured or personal loan, you could put a pause on interest accrual by applying for a card with an introductory offer of 0% interest on balance transfers for six to 21 months.10 This can be particularly beneficial for those struggling with high loan payments.
To make this approach work, however, you need a strict and practical plan to repay much or all of your transferred debt within the zero-interest timeframe.
#9: Payday Loan Debt Consolidation
Payday loans are among the most high-interest debt vehicles available today. Short of a Hollywood-style loan shark, they top the list in predatory lending that targets low-income borrowers struggling to make ends meet.
If you can qualify for a personal loan from a credit union, bank, or other lender, use it to pay off payday loans and switch to making payments on a single personal loan. An unsecured loan through a traditional lender will typically max out at 36%, vs. a single-digit interest rate that you can get through a loan secured by a home or other property.11
However, payday loan fees typically end up equating to an insanely high 400% annual percentage rate, which makes switching to almost any other type of debt a move in the right direction.
#10: Bankruptcy as a Last Resort
If all else fails, you may need to consider bankruptcy. The two most common types are:
- Chapter 7 Bankruptcy – About 70% of bankruptcies are Chapter 7.12 While they’re classified as liquidation bankruptcies, the majority don’t result in the sale of a home to pay off debts. Chapter 7 will wipe out most debts other than alimony, child support, taxes, property liens, and (potentially) student debt.
- Chapter 13 Bankruptcy – Reorganization bankruptcies put a pause on foreclosure or repossession to allow you to catch up on payments. At the end of three to five years, the remaining unsecured debt may be discharged.
Bankruptcy significantly limits your future ability to borrow or obtain credit at a decent rate (or at all)—plus, it’s not free. You’ll pay $1,500 – $3,000 for Chapter 7 bankruptcy or $3,000 to more than $5,000 for Chapter 13 bankruptcy lawyer, trustee, and administrative fees.
Debt forgiveness for seniors is a critical need based on the growing amount of debt among the older adult population. And there are many ways to reduce or forgive debt.
Practical steps include working with a nonprofit credit counselor and setting up a budget and repayment plan. Moving high-interest debt to lower or zero-interest debt will also help.
Homeowners can leverage their property to secure funds to pay off debt through a reverse mortgage or a debt-free option: a residential sale-leaseback.
- Statistica. Share of old age population (65 years and older) in the total U.S. population from 1950 to 2050. https://www.statista.com/statistics/457822/share-of-old-age-population-in-the-total-us-population/
- InCharge Debt Solutions. Retired and in Debt: Help for Senior Citizens. https://www.incharge.org/blog/retired-and-in-debt-what-to-do/
- National Council on Aging, Inc. Get the Facts on Senior Debt. https://www.ncoa.org/article/get-the-facts-on-senior-debt
- Care.com. Debt forgiveness for seniors: 5 strategies to consider. https://www.care.com/c/debt-forgiveness-for-seniors/
- Debt.org. Financial Help & Government Programs for Seniors. https://www.debt.org/advice/financial-assistance-for-senior-citizens/
- SeniorLiving.org. Why Older Adults Shouldn’t Worry about Old Debts. https://www.seniorliving.org/finance/old-debts/
- Consumer Financial Protection Bureau (CFPB). Budgeting: How to create a budget and stick with it. https://www.consumerfinance.gov/about-us/blog/budgeting-how-to-create-a-budget-and-stick-with-it/
- Consumer Financial Protection Bureau (CFPB). What is credit counseling? https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/
- Debt.org. The Reverse Mortgage: Pros and Cons. https://www.debt.org/real-estate/mortgages/reverse/
- Credit Karma. What is balance transfer APR? https://www.creditkarma.com/advice/i/what-is-balance-transfer-apr
- NerdWallet. Payday Loan Consolidation: What It Is and How It Works. https://www.nerdwallet.com/article/loans/personal-loans/payday-loan-consolidation
- Debt.org. Types of Bankruptcies. https://www.debt.org/bankruptcy/types/