Discipline is a critical skill to master, especially for older adults. A single forgetful moment can turn your physical and financial health totally haywire.
Managing money on a fixed monthly income can be somewhat difficult. After retirement, income associated with debt leads to at least three times as many financial problems.
Sleepless nights, the chorus of debt collection calls, and plunging credit scores - all things an older adult needs to avoid at all costs. The complexities of later life - like medical bills and rising expenses - can really push a person into debt and eventually, to insolvency.
Here are some debt management techniques that may be helpful for older adults:
1. Gather your financial details.
It is important to gather all your documents about your financial situation. Review credit card statements, bills from doctors and hospitals, and papers from the mortgage.
Compute your debts on credit cards, hospital bills, and mortgage loans. Compute the interest and total amount owed. Look through your bank statements to know how much money you have to help you carry out a comparative analysis of income and expenses.
If you do have credit card debt, you might want to try going and getting a session with a charity organization in credit counseling. Select a nonprofit credit counseling agency that will help you create a financial plan for getting rid of your debt.
Older adults who are chronic ill patients can hospitalized at least once during the course of a year. And, it goes without saying that huge bills can be incurred. It is ironic that even after having a policy, either health or disability, 4 million seniors incur some form of medical debt.
Most people don’t know that you can go to your healthcare providers to negotiate a discount or reduction of costs. It would be better to ask for a discounted rate before actually going to the hospital.
Older adults should check bills thoroughly to see if there are any mistakes; just one mistake can multiply the bill amount tremendously. Thus, checking carefully is very important to find out whether there is a discrepancy. At times, when the insurance companies refuse to pay for healthcare charges, hospitals send the bill to the patient.
Once you get the itemized bill, look at the billing codes. Ask the insurance company why they didn't pay the charges. If there is an error in the billing code, then ask the hospital to send the right one to you. This may help in decreasing that bill amount.
Only if the debt is too high can older adults negotiate settlements with hospitals. Hospitals may just sign off debts for lump-sum amounts if you can prove hardship.
2. Create a smart budget plan.
Creating a budget is crucial for older adults as it provides a clear financial roadmap that ensures they can maintain their independence and financial security throughout retirement. As individuals transition from earning a regular income to relying on pensions, Social Security, or savings, having a budget becomes essential for managing expenses and avoiding overspending. A well-structured budget helps older adults track their income and expenses, prioritize essential needs such as housing, healthcare, and utilities, and identify areas where they can cut costs. Additionally, budgeting can offer peace of mind by reducing the stress associated with financial uncertainty, allowing seniors to focus on enjoying their retirement years. It can also help plan for unexpected costs, like medical emergencies or home repairs, which tend to increase with age. Another significant benefit is that it ensures older adults can maintain their desired lifestyle without depleting their savings too quickly. By setting limits on discretionary spending, seniors can balance their immediate needs with long-term financial goals, reducing the risk of running out of money later in life. Furthermore, a budget can assist in managing debt or paying off outstanding loans, which is particularly important for maintaining good credit and avoiding financial hardship. Overall, budgeting empowers older adults to live within their means, safeguard their financial future, and ensure they have the resources needed to live comfortably in their later years.
3. Consolidate debts
Older adults can consolidate debts at a lower interest rate through a program or a loan. There are two kinds of debt consolidation loans - secured and unsecured.
In contrast to unsecured loans, secured debt consolidation loans typically have lower interest rates and require collateral. So, older adults would take a substantial debt consolidation loan and pay off all their debts. After this, they would start making one monthly payment - a much lower amount due to the very low interest rate.
Those who don't want to take out new loans can enroll in debt consolidation programs. In these programs, the debt counselors negotiate with creditors for lower interest rates on the loans. The negotiation process continues until an amicable agreement is reached.
As soon as the letter is on file with all the strokes, older adults can commence to make monthly payments into the debt consolidation company that would then disperse the funds to each creditor accordingly. The same would continue to go on until that debt is paid.
Beware of debt consolidation scams. Never work with a debt consolidation company without checking their credentials, reviews and fee structure. If they ask for fees upfront, or "claim" to waive your interests, it is a red flag. Read the agreement carefully before signing it.
Pros and cons of debt consolidation
Advantages of Debt Consolidation
Simple payments: Instead of paying several debts, there is only one loan simplifying and organizing finances.
Lower Interest: Consolidation loans charge interest rates lower than the usual high-interest credit cards making money over time saved.
Fixed Repayment Period: Debt consolidation loans have fixed repayment periods unlike a revolving balance on credit cards. This helps in budgeting.
Improved Credit Score: Timely payment of loans will gradually increase the credit score.
Reduced Stress: A single loan instead of many loans may reduce financial stress and give peace of mind.
Risks of consolidation
Chances of Higher Overall costs: The payment duration is longer though the interest rate may be less; the total interest an individual pays in the long run may be more.
Chances of Blowing New Debts: Failure to exercise financial discipline enables one to use credit cards after loan consolidation and hence accumulate more debts.
Risk of Losing Collateral: Consolidation may be through a home equity loan. But, avoiding payment can result in foreclosure.
Credit Score Impact: When you apply for a new loan, your credit score can temporarily decrease as a hard credit report inquiry is made.
4. Apply for a reverse mortgage.
A reverse mortgage enables older adults (those above 62 years of age) to turn their home equity into cash. They can assume debts against home equity with an amount either to pay off debt or for other expenditures. The advantage lies in the fact that there are no immediate monthly payments due from the older adult. The interest and fees accrue on the loan depending upon time without payment. However, when a senior no longer lives in the house, they have to pay back.
A reverse mortgage has advantages and disadvantages, and it's better to get in touch with HUD for details beforehand.
Risks > Reverse Mortgages
Reverse Mortgage Risks
High fees and charges: Reverse mortgages have high up-front fees like origination fees, mortgage insurance premiums, and closing costs.
Exhaustion of home equity: The homeowners gradually deplete their home equity, which may lessen the amount of assets passed on to the estate.
Payment of the loan upon the borrower's death or departure from the home: Mainly, upon either the borrower moving out of the home or upon the death of the borrower, the reverse mortgage is paid back usually after selling the house for proceeds to repay the loan.
Effects on Government Benefits: Payments under reverse mortgages may affect eligibility for Medicaid and Supplemental Security Income (SSI). Each state has an eligibility limit based on an individual's assets and income.
Foreclosure risk: Property taxes, homeowner's insurance, and maintenance fees must continue to be paid by borrowers; non-payment will invite foreclosure.
Alternatives to Reverse Mortgages
If all else fails, however, alternatives to a reverse mortgage include:
Home Equity Line of Credit (HELOC): A HELOC allows homeowners to borrow against their home equity with lesser charges and at a lower interest rate when compared to a reverse mortgage.
Refinancing: One could consider refinancing at a lower rate and attain lower monthly payments.
Downsizing: Selling your present house and moving into something smaller and more cost-effective will generate some cash and save on expenses.
Renting out part of the home: Owners can earn extra money by renting out portions of their home like a basement apartment or spare room.
Look for government assistance programs: State and federal programs out there help the elderly with housing grants, utility assistance, and some medical expenses.
Personal loans: Certain seniors may be assisted financially by relatives or private lenders, enabling them to raise cash without the prohibitive costs.
Smart Advice
Debt should be avoided after turning 50. If your children require loans for their education, refrain from signing documents with them. If your children do not find a job or pay off debts, then creditors will come after you. Your credit score gets damaged. Above all, you will have to make arrangements to get money to offset debts.
Take your health seriously and get good health insurance so that you do not have any further financial issues.
Avoid high-interest payday loans, no matter how much you need money. Instead, request a personal loan from your family under agreeable terms.
Final Thoughts
It's hard to talk about money with family members, yet older adults are the ones to gain from family support and cooperation. Family members can help with securing a loan or increasing budgeting discipline. Furthermore, they can help navigate through any challenging financial matters.
Stay happy and blessed. Take care.
Author Bio:
Attorney Loretta Kilday has over 36 years of litigation and transactional experience, specializing in business, collection, and family law. She frequently writes on various financial and legal matters. She is a graduate of DePaul University with a Juris Doctor degree and a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum. Please connect with her on LinkedIn for further information.
