2023 has been highlighted by several financial woes, among them a senior debt. According to a 2016 report, the percentage of debt from households headed by 65-year-olds and older soared to 86% percent from 1989’s 38%. Since then, the numbers have only plummeted with the high inflation rates and protracted recessions, leaving seniors in a dire debt crisis. What does this mean for the senior American citizens- should they hold their breath for remission or brace themselves for a skate on thin ice?
The Brewing Senior Debt Crisis
This year was tough on seniors; unfortunately, next year doesn’t look promising. The global economy is at its worst, and seniors, like the rest of society, are set to feel the pinch. The silver lining, however, is that despite the seemingly impossible constraints (meager pensions, spread-thin fixed incomes, and rising cost of living), older adults can still learn to swim through this changing financial tide. How so? By identifying the seepage. Ahead, we highlight five prevalent causes of senior debt to help you identify the leak.
1. Supporting Adult Children
For some retirees, offering a helping hand to their struggling children is what sets them on a credit spiral. Naturally, parents are moved to pull their children out of their financial woes, and while there’s nothing wrong with this, taking on that weight has consequences. Offering substantial financial support to your adult kids amid your retirement could mean dipping into your savings fund or slowing down your retirement payments which eventually drives you into senior debt.
2. Unexpected Illness
No financial forethought can prepare you for an unexpected illness. An unexpected illness tends to hinder your work output and productivity, which subsequently means that your retirement payments and savings slow up. With time, this shortfall catches up to you in the form of unplanned debt taken to cover the financial gap. That aside, with most long-term disability insurance plans only replacing a percentage of the income, seniors are at a high risk of falling into debt.
3. Unemployment
Getting laid off is a prevalent cause of senior debt in America. Ideally, when a subject is cut off from their primary source of income, they’re left struggling to meet household, medical and gas bills. In desperation, people in this situation turn to creditors for a way out, which is no different from using Band-Aids for deep gushes. Over time, these high-interest credit loans prove ineffective in holding them afloat, which unfortunately means that the subject will fall behind on their retirement savings.
4. Divorce
Divorce is a real pain, from its legal cost to the post-annulment lifestyle and budgeting. Take couples that have been together for several years for instance, they are most likely to share all their household expenses. The undoing of their marriage will force these two parties to adjust to the transition, which almost always means taking on lots of financial weight individually. Besides the considerable lifestyle and economic shift, some couples will have to come to terms with the contesting party claiming a percentage of their pension and income, sending them further into a financial strain they might never recover from.
5. Death Of Spouse
Some retirees fall into debt following the death of their spouse. Often, the deceased partner single handedly managed household expenses and budgeting, and their remnant partner struggles to navigate their new financial standing in their absence. Then again, the death of one partner means that the income will be split in half, leaving one partner to foot all the bills alone; this can be financially frustrating, catapulting the subject further into senior debt.
What’s The Way Forward For Affected Seniors?
Great, now you know the situations most likely to spiral you into the senior debt crisis; however, do you know how to curb them? Below we highlight possible solutions to the scenarios mentioned above, each of these tips is perfect for the retiree looking to shed existing debt, the older adult looking forward to a debt-free retirement, and the caregiver trying to look out for the senior citizen. Let’s get into it.
1. Reverse Mortgage
Consider taking a reverse mortgage on your property to save yourself from mortgage debt. Like a home equity loan, this loan will buy you more time; however, you will not be required to make any monthly payments. When you sign up for a reverse mortgage, you get to keep the property for as long as you live, although upon your death, the payments come due for your relatives. The relative responsible will then be tasked with either paying off the mortgage or selling it to balance the loan payments. While this approach may not seem like much, it lets you live out your senior years without the frustration of a looming debt or mortgage payment. All you have to do is have a considerable amount of equity, afford monthly property tax, insurance payments, and meet the 62 years age eligibility criteria.
2. Diversify Income
This doesn’t sound like a typical retirement plan; however, diversifying your income stream might be the best way to absolve yourself of senior debt. Look into part-time jobs that you can work to earn those extra bucks; it could be anything from online consultancy to baking. You can still stretch out of your income stream even if you’re out of your job. Consider prolonging your working life a little longer until you can pay off your debt; this way, you won’t have to dip into your pension and social security funds.
3. Downsizing
Some call it downsizing; we call it rightsizing. When a retiree is struggling to keep up with debt and expenses, they can readjust their lifestyle to fit their needs. For some, this could look like moving into a smaller apartment, getting a smaller, a more affordable car, cutting out unnecessary purchases, and eating in more often to reduce monthly expenditure. For others, this could mean stripping their budget down to mere needs or taking in a roommate; whichever the case, shaving off your expenses is always a practical approach to clearing debt. Remember to channel those savings towards paying off your debts, more so those with high-interest rates.
4. Seek Help
Seniors struggling with debt can always choose to employ the help of a third party; this third party could be anyone from a relative to a friend or a professional. Take the senior citizen still struggling to adjust to the death of their spouse; for instance, this individual could employ the help of a professional accountant or financial advisor to work out the complexities of budgeting, taxes, and credit for them. Alternatively, they could always ask a trusted relative or friend to handle their finances while they get a grip on things. On that same note, seniors can seek the help of non-profit and government initiatives to rid themselves of debt; however, if this feels like a stretch, asking their close circle to step in and assist is always another option.
5. Declare Bankruptcy
Lastly, seniors can file for bankruptcy to lessen the weight of debt. Filing for bankruptcy automatically qualifies them for debt forgiveness while protecting their pension, retirement, and social security payments from creditors. By law, seniors can file for bankruptcy through Chapters 7 and 13; that said, one must learn what each option entails to make the right call for their financial situation.
Parting Shot
Whether you’re caring for a senior citizen with debt or walking into retirement with credit, all hope is not lost; seniors can still pull themselves out of debt without messing up their retirement plans. By identifying the problem and adopting healthier money habits, one can adequately shake off debts in their golden age and live comfortably throughout the years. If you deem yourself too far gone to practice any of the sworn debt elimination tips, consider any of the five solutions listed above to shed off the weight of debt. Remember, most of these strategies take time and effort to manifest, so patience and persistence will be critical in your endeavor.