What can seniors do if they are struggling with credit card debt?

Posted by: Aiden white on

According to a recent CNBC report, debt among the older adults in our country has increased rapidly by a whopping 543% in the last two decades.

Isn’t it shocking enough? But what makes them fall prey to the credit card debt trap?

Many seniors have been using credit cards for a long time. And they don’t pay off their credit cards during retirement.

After retirement, a substantial portion of older adults depends on Social Security. And in 2020, the average Social Security check was about $1,503 a month. So, certain unexpected costs in retirement and inflation with limited income make them dependent on credit cards.

How can seniors pay off their credit card debts?

Paying off credit card debt after retirement can be difficult. But it’s not impossible either. Here are a few ways that can help you to eliminate credit card debt in retirement.

1. Opt for a repayment strategy

You can start paying off your debt with the smallest outstanding balance amount first. And at the same time, you will have to make minimum payments for all other debts. This repayment strategy is known as the debt snowball method.

So, if you opt for the debt snowball method, you are likely going to pay off the smallest amount of debts within a few months. Thereby, it can help you stay motivated in the due course.

Once you pay off the debt having the smallest outstanding balance amount, you have to move to the debt with the second smallest outstanding balance amount and so on. This way, you have to continue this process until you eliminate credit card debt from your life.

2. Negotiate with your creditors

If you are unable to repay your outstanding balance amount in full, you can talk to your creditors about it before they sell off the debts to a collection agency.

Explain to them why you are unable to make the necessary payments. And try to convince your creditors to reduce the outstanding debt amount. If you have been regular in making payments and suddenly you are going through financial hardship, they might approve your request.

However, negotiating with creditors is quite a cumbersome task to do. Why would anyone accept less than what you owe? So, if you want to negotiate with your creditors to lower the outstanding balance amount, it would be better to opt for professional help.

3. Opt for a debt consolidation program

Are you overwhelmed with multiple credit card debts? If yes, you might be shelling out a substantial amount every month for making the monthly payments. The worst part of credit card debt is its high-interest rates that make the monthly payments hefty amounts.

But if you opt for a credit card consolidation program, you won’t have to worry about managing multiple debts anymore. You can get rid of your multiple credit card debts with ease. Because unlike before, you will have to focus on making a single payment every month. And you may have to shell out much less as the interest rates are likely going to reduce. But make sure that you approach a reputable debt consolidation company that has goodwill in this field.

4. Apply for a reverse mortgage

You can opt for a reverse mortgage if you are 62 years or older. By doing so, you can borrow up to 80% of the equity in your home. Unlike a traditional mortgage, you can take out the loan in the form of monthly installments. And the best thing is, you don’t have to make any monthly repayments.

However, the loan is repaid when you sell the house or after your demise. Upon your death, only a handful of assets will be available to leave for your heirs since you have used your home equity. If you leave the home to your heirs, they will have to pay off your loan balance amount.

So, I would say that opting for a reverse mortgage can be your last resort to get out of credit card debt. Because in this case, you are keeping your shelter at stake. And I hope you know how important a shelter is!

What are the good money habits that seniors can develop to avoid debt in the future?

Well, you might have started paying off your credit card debts to get out of this situation. But at the same time, you need to develop some good financial habits to stay away from debt traps as much as possible. Here are some of the best possible tips that you can follow:

1. Replan your budget

A budget is a basic tool to keep your finances on track and put aside money for your well being. After retirement, your income might become less than your earning years. So, you need to look for ways to reduce your expenses and save those dollars.

This way, you can maintain the safe withdrawal rate (financial experts consider 4% as the safe withdrawal rate to lead a comfortable retirement) to avoid exhausting your nest egg.

2. Beware of co-signing

Is your child struggling to take out a personal loan? Or, is your grandchild planning to take out his/her first credit card?

If yes, you must be planning to do the best for them. And for that, you might be planning to become a co-signer of their loans.However, your generosity can affect your financial life adversely. And it might make you fall prey to the debt trap too.

If the borrower doesn’t make payments on time or doesn’t repay at all, you will be held responsible too. The lenders might sue you for non-payment of debts. And you may have to repay the debt in full if the borrower fails to pay off.

Besides, making late payments or no payments can hurt your credit score too. And let me tell you, the new changes in the FICO score take late payments or delinquencies very seriously.

So, before you become a co-signer, think about its pitfalls. Make sure to read the terms and conditions carefully as the creditors will give you a notice that will explain your obligations.

3. Check your credit reports thoroughly

According to an FBI (Federal Bureau of Investigation) report, millions of older adults become victims of financial fraud every year.

So, I would advise you to check your credit reports from all the three major bureaus (Equifax, Experian, and TransUnion) at least once a year. By doing so, you can detect any unusual or fraudulent activities in your credit accounts.

If you come across any suspicious activity, report it to the credit card companies and the credit bureaus. Otherwise, you will have to pay off the debt that you haven’t racked up.

So, check your credit reports by visiting AnnualCreditReport.com. You are entitled to receive a free credit report once a year from all three bureaus.

Read: 7 Ways to protect your credit from identity theft

What are the tips for your grandchildren to lead a financially stable life?

Being a grandparent, it’s obvious that you would want the best for your grandchildren. To help them financially, you might plan to give $15,000 a year for their college costs without incurring a gift tax. That’s good.

But you need to share the experience you had about your financial life. And impart good financial habits so that they can lead a financially stable life ahead. Here are some of the good financial tips that you can share:

1. Live below your means

Living below your means is spending less than what you earn in a month. For that, you can help your grandchildren to chalk out a budget that has helped you. Also, share some tips on how you stick to a budget.

If they learn to live below their means successfully, they will be able to save for their financial goals. They can also lead a financially stable life ahead by focusing on the necessities of their lives.

2. Pay yourself first

Ask your grandchildren whether or not they are saving money at the end of the month. If they’re not able to save a substantial amount, make them understand to put aside money for their savings first and then spend money on other things.

Also, advise them that they should start saving for retirement right from the day they receive their first paycheck.

3. Set financial goals

One needs to set up financial goals first and then start working on their finances to accomplish them. So, you can advise your grandchildren to set financial goals like early retirement, buy a house without a mortgage, etc.

4. Stay away from unsecured debt

Unsecured debts like payday loans, credit cards can burn a hole in your pocket due to their high-interest rates.

Eventually, your grandchildren may have to sacrifice a substantial amount of their paychecks to make the debt payments.

So, ask your grandchildren to refrain from incurring unsecured debt as much as possible. If they want to use credit cards for maintaining a good credit score, ask them to use credit cards wisely. For example, advise them to pay off the outstanding balance in full and within the due date, charging credit cards for affordable amounts, etc.

So, the bottom line is, if you are an older adult and struggling with credit card debts, you need to look for strategic ways to get out of the situation asap. The more you wait, the more you will have to shell out for making interest payments.

At the same time, you need to learn how to live frugally when you have become a senior citizen and relax during your golden years.