4 Tips for Seniors Facing Debt
We are constantly talking about the need to financially educate our children, but recently a more disturbing trend is developing across the nation. Seniors are running up debt to pay for necessities and many are actually being forced into bankruptcy. The problem is a weakening in the triad of normal economic security for the nation's senior citizens: Social Security, private savings and pensions.
Seniors often find their Social Security income is reduced when their spouse dies. Fewer workers are receiving traditional pensions, and many retirees have seen companies cut back on their pensions or health care coverage. Savings, meanwhile, took a hit during the 2000-02 bear market on Wall Street or weren't large enough to sustain them through their retirement years.
Americans are now living longer, in part due to dramatic advances in medical care. One of the costs of longer life expectancy is that someone has to pay for the required medical care our seniors need. While access to quality medical care is essential for seniors, it can leave them saddled with unmanageable medical debt.
Meanwhile, a recent study by the Consumer Bankruptcy Project at Harvard University discovered that the number of seniors filing for bankruptcy is still relatively small. The study found that about 82,000 bankruptcy petitioners - or 4.6 percent of the total 1.8 million - were 65 and older. But the survey also determined that seniors are the fastest-growing group of petitioners in bankruptcy courts.
There are a wide variety of methods to pare down the debt to make life a bit more bearable. Here are just a few:
Savings solutions. Statistics show that a majority of seniors don't have much savings ($12,000 or less) and using what they have isn't recommended to pay off credit card debt. Paying off credit card debt that costs 20 percent interest with money that is earning 4 percent (maybe) initially sounds like a positive move. But, consider whether the savings can be replenished. If not, leave it alone.
Tap a bit of cash out of an insurance policy. If the senior has an insurance policy with a cash value attached to it, consider taking a cash-surrender loan, which doesn't have to be paid back.
Reverse mortgages. Seniors using home equity is usually not advisable. Perhaps a "reverse mortgage" better suits the needs of our elderly population. Equity is converted to cash and paid out on a monthly basis, in a one time lump sum payment or for use as a credit line that can be used whenever the cash is needed. AARP ( HYPERLINK "http://www.aarp.org" www.aarp.org) has a reverse mortgage calculator. Use it to see if this might work for you.
Bankruptcy. When all else fails. This will be difficult decision psychologically and financially. Before making a move like this, consult with a bankruptcy lawyer or a credit counseling company. They can be found through the National Foundation for Credit Counseling ( HYPERLINK "http://www.nfcc.org" www.nfcc.org). Seniors' debt load is likely to get worse as medical costs continue to increase and as the Baby Boomer generation gets older. And even for those individuals who don't face rising medical costs, lower interest rates for those living on fixed incomes may contribute to increased credit card use. The moral to this story is that financial problems and over-stressed credit card debt is not just a problem of the young and inexperienced. Be aware of the plight of the nation's elderly population and make sure that they get the education and help they need to weather the storm of future financial maladies.
There are a number of organizations set up to assist the elderly through difficult financial times. Groups like the AARP or the National Senior Citizens Law Center, among others, are designed to help. Let's take an interest in our senior population and make sure we steer them in the proper directions to get the assistance they need to improve their standards of living.
Originally published in the Outspoken e-newsletter.