Friday, August 18, 2017

Paying Off Credit Card Debt on a Fixed Income

Paying Off Credit Card Debt on a Fixed Income

When you’re robbing Peter to pay Paul on a fixed income, it might seem impossible to pay off existing credit card debts, but there may be ways to manage that debt.

One in three households of older Americans has no money left at the end of the month, or has to go into debt to pay the bills for the month, according to the National Council on Aging. In part, this is because of credit card debt. The Federal Reserve Board estimates that older Americans have an average of $40,900 in debt, in addition to the cost of living. For most living on fixed retirement incomes, that means there’s too much month left at the end of the money.

One way that some older adults may handle the situation is to reduce their debt load by paying off credit card debt. That seems counter-intuitive. You already have more debt than you can pay, how are you supposed to pay off debt? There are some options, and lightening that load could mean the difference in not only stress levels, but lifestyles.

Getting Help from the Credit Card Company

It isn’t always your first instinct, but looking to the credit card company for help might be your first best step. A credit card company’s highest priority is getting you to pay off the money they’ve loaned you. Their second is gaining as much in interest payments as possible. That means there are often programs and strategies that they don’t share. Call your credit card company and ask about these strategies:

  • Negotiate a lower interest rate: If your payments are current, some credit card companies will lower your interest rate. You just have to ask.

  • Zero interest cards: As your credit card company if they have any card specials that you qualify for that offer zero interest on transfer balances. If they don’t, look at other card companies. Be sure the check the transfer fees, though. Sometimes they’re higher than your existing interest rate.

  • Ask about a hardship program: Most credit card companies have a hardship program, even if not all customer service agents know about it. The program will usually reduce payments and interest rates for a specified period of time. They may even reduce or remove fees and penalties. However, you may have to talk to one or more people at the credit card company to find someone that knows a hardship program even exists.

Consider Other Cost Saving Options

In addition to reaching out to credit card companies for help, it’s also a good idea to look at your own budget and determine if there are places where you can cut costs. Common expenses like cable are probably not necessary. A good pair of rabbit ears will get you basic cable in most places, and you won’t have a bill.

Beyond basic expenses, one of the highest costs that most older Americans struggle with is prescription costs. To help combat that, spend some time researching programs that will help you reduce those costs. A good place to start is the National Council on Aging’s BenefitsCheckup.

The BenefitsCheckup web site is dedicated to helping older adults find benefits programs not only for prescriptions, but also for medical car, food and housing, and several other areas. You can also check into local programs that offset living expenses for older adults. For example, your utility companies may offer discount programs for anyone over a certain age. The savings from any of these programs can then be used to reduce your debt burden.

Other Financial Alternatives

When all else fails, you could have some financial options for reducing credit card debt. Many older Americans have been in their homes long enough that they are paid off, or nearly paid off. If this is the case, you can consider a reverse mortgage.

Reverse mortgages are essentially when the bank makes your mortgage payment to you. At the end of your life, however, your heirs are left with a mortgage on the home that you live in, and if they can’t or don’t want to pay it, then the bank resells the home to recuperate the payments made to you. This may sound like a scary option, but in some cases, it’s exactly what you need to pay off high interest debt.

Similarly, a home equity line of credit might be a viable alternative. You can borrow against the equity in your home and the interest rate is tax deductible. If you’re not comfortable with the reverse mortgage options, a home equity line of credit could dramatically reduce the interest you pay on credit card debt.

Another option is to look at the value of your life insurance policy. Can you borrow against it, or even cash out the policy? If your debt is overwhelming, this might be a good option because it allows you to pay the debt off so your family won’t be saddled with it after your death.

Trying to juggle debt on a fixed income is stressful, but it’s not impossible. Look into the options that you have to reduce your debt load. Check out some of the options here, or try some of your own. Before you know it, you’ll have much less stress about money and more freedom to enjoy life.

Disclaimer: The Society of Certified Senior Advisors does not dispense legal advice and nothing in this article should be construed as such. If you have legal questions, please contact an attorney in your area.



Sources

Credit Card Hardship Programs: Little Known Alternative for Debtors,” Dana Dratch, October 2010, CreditCards.com.

8 Ways to Pay Down Debt on a Fixed Income,” Tamara E. Holmes, May 2016, CreditCards.com.

BenefitsCheckup,” National Council on Aging.

Knee Replacement and Revision Surgeries on the Rise,” Linda Rath, Arthritis Foundation.

Credit Card Debt and Living on a Fixed Income,” 2005, Balanced Financial Fitness Program.

Debt Management Tips for Seniors,” Aleksandra Todorova, 2007, Key Bank.

Blog posting provided by Society of Certified Senior Advisors
www.csa.us