What You Need to Know About Debt Relief for Seniors

debt reliefA surprising number of seniors carry substantial debt and can’t find their way out.

In fact, among American families headed by individuals ages 55 or older, debt increased from 53.8 percent in 1992 to 65.4 percent in 2013, according to the Employee Benefit Research Institute. Retirees most often report having the following types of debt:

  • credit cards (27 percent of retirees),
  • a mortgage (23 percent),
  • a home equity line of credit (17 percent), or
  • car loans (17 percent).

Fortunately, there are services available to help seniors struggling with debt. Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network, provides a primer on various debt relief services available to older adults, including debt consolidation, debt management, and debt negotiation.

Debt Consolidation for Seniors

For seniors suffering under the weight of many accounts with high interest rates, debt consolidation can provide a measure of relief.

“Debt consolidation simply means combining debts to obtain one interest rate and one payment in order to help focus your payment efforts,” says Gallegos.

Consolidation options include borrowing from a friend, a bank, or a loan service, or securing a home equity loan or vehicle title loan to pay off credit card debt.

The balance-transfer offers you get in the mail could also be useful, though Gallegos issues a caveat: “The transfer fees can cancel out savings, and when the rate expires, interest rates will rise.”

Another option is to work with a debt consolidation service, which enables you to turn many bills into one monthly payment on a new, larger loan. Of course, you will still be required to repay your loan in full, plus interest.

Gallegos says debt consolidation is best for seniors who are able to pay their bills but find it difficult to juggle multiple bills and payments. If you’re in the market for this type of debt relief, look for a reputable, low-fee loan or service that offers a lower interest rate than the ones you’re currently paying.

Debt Management (Credit Counseling) for Seniors

Another way to lower the interest rate on your debt is to undergo credit counseling. But, contrary to what you might have thought, this is typically a for-profit service.

“Credit counseling agencies (also known as debt management companies) maintain prearranged agreements with credit card companies to lower interest rates on existing debt to a creditor-issued ‘concession rate,’” says Gallegos.

Here’s how it works: The agency will enroll you in a debt management plan that reduces your monthly payments and interest rates, but does not reduce the total principal you owe. The agency will charge you a monthly fee for its services, which is about $10 to $15 per debt account enrolled.

Gallegos says credit counseling is best for seniors who would benefit from a lower interest rate and who can stick with the program for the full five years of repayment.

Debt Negotiation (Settlement) for Seniors

While debt consolidation and debt management can be helpful tools, for some seniors, that level of debt relief is not enough.

Regulated by the Federal Trade Commission, debt negotiation firms work on consumers’ behalf to lower their principal balances. With this option, savings are typically 50 percent of the total debt before fees, says Gallegos.

“A debt negotiation firm does not make monthly payments to creditors, but rather negotiates directly with the consumer’s creditors while the consumer accumulates funds for the settlement through a monthly program payment,” he explains.

Gallegos says debt negotiation is best for those who have serious debt (usually $10,000 or more) and cannot make their minimum payments. The required monthly payments are usually much less than consumers’ current payments, and debt can typically be resolved within two to four years. But debt negotiation is achieved at a price – a black mark on your credit report.

“Struggling with debt is not fun,” affirms Gallegos. “Sometimes the hardest thing to do is take the first step to confront the situation. But it is possible to address the problem and find a solution that can put you on track to getting out of debt and finding financial freedom.”

CHIME IN: What steps are you taking to achieve financial freedom?

Tagged with: , , ,
10 comments on “What You Need to Know About Debt Relief for Seniors
  1. I have spoken with many seniors that went without medicines and food to pay old debt to debt consolidation or settlement companies for old debt they could not afford to pay. Half of seniors over 65 have incomes within 200% of the poverty line according to the Kaiser Foundation. This blog article unfortunately leaves out the fact that social security and retirement income is protected by federal law. Poor seniors do not have to pay old debt if they are unable. Because this information is left out this article is a disservice.

    • Robyn Tellefsen says:

      Kevin Gallegos
      [email protected]

      Mr. Olsen’s statement that social security benefits and retirement income being protected by federal law is true. For example, in a bankruptcy, these funds do not have to be included as income. (Other assets and income are not protected in the same way.)

      However, once funds leave the possession of the consumer, they are unprotected. If a senior decides to use his or his retirement funds to pay down debt, that is the individual’s decision. In addition, if a consumer comingles funds from many sources in the same bank account, there is an argument that these funds are no longer protected because it is not possible to determine what dollar was used for what purpose.

      If someone – senior or other – is considering debt settlement as a means of reducing principal debt owed, the key is to work with a reputable debt relief company that will explain options and how different methods of debt relief work. Sometimes, debt settlement is a good choice; in other cases, it could be debt consolidation or credit counseling. And in many cases, a senior on a fixed income can be a good candidate for bankruptcy.

      The bottom line is that if, and how, people choose to use their income to take care of debt is a personal decision. They need to work with a company that will help them learn about the process. A good place to start is with an industry organization such as the American Fair Credit Council (AFCC). The AFCC’s code of conduct for its members is even stricter than FTC guidelines.

      • Eric Olsen says:

        As an attorney and the Executive Director of a nonprofit law firm that helps lower income seniors, I have never, not once, ever had a senior say that a debt settlement person ever told them “by the way you don’t have to pay your old debt, your income is protected.” Instead they act in their own financial interest. I have seen many senior put into utter poverty paying a debt consolidation company a payment they could not afford. Why doesn’t the American Fair Credit Counsel’s code of conduct say anything about advising persons who receive federally protected income like social security that their income is protected? Their code of conduct largely involves statements about the fees they charge. It is not in their financial interest to tell a person that their debt doesn’t need to be paid. Sorry, after much experience I have no respect for this industry.

        • Patti Aguas says:

          this information about income protection is news to me. How is personal property affected if unsecured debt is not relayed by a senior?

          • Robyn Tellefsen says:

            From Kevin Gallegos ([email protected]; http://www.freedomfinancialnetwork.com):

            On the question of how “personal property” (unsecured debt) comes into play in debt settlement (for anyone, not just seniors), personal property generally is not impacted; unsecured debt is not tied to any collateral assets. However, if a creditor should successfully sue a consumer and get a judgment, there may be some chance that personal property could be in jeopardy. This will be based on individual state laws. In some states, it is possible for a creditor to garnish wages, attack money in bank accounts, or go after other property. Each state is different; the amount and type of property varies considerably. For example, in some states, such as Florida or Texas, equity in one’s primary residence may be exempt. In Arizona, only the first $150,000 is exempt. One good resource to check out is https://www.assetprotectionplanners.com/articles/truth/homestead-exemptions-by-state/.

  2. Eric Olsen says:

    Since nearly half of seniors have incomes less than 200% of the poverty line and many owe old debt, information provided should be accurate and complete. It is important that lower income and poor seniors never be placed in a condition of fear. Twice the amount of monthly social security electronically deposited into a bank account is protected from garnishment by federal banking regulations, no matter the source of funds in the account at the time of the garnishment. So $1000 per month in SS, then $2000 in that account is automatically safe from garnishment. It is true that each state has “exemptions” for different classes of property. However it is important to point out that it is virtually never a practice for a judgment creditor to proceed against a person’s personal property that may or may not be exempt under state law. The same can be said for a person that may own real property- a home. There are exemptions for equity in real property that vary between the states. These exemptions are important for persons who may be planning to file bankruptcy. But again a judgment creditor will virtually never proceed against a person’s home, even if that person has equity in excess of that state’s exemption. The judgment becomes a lien and a judgment creditor would hope to get paid perhaps if the property is ever sold. It just needs to be clear that judgment creditors seizing property from seniors, especially lower income seniors is not a practical concern.

    • shirley miller says:

      What about tax es owed to the state of illinois revenue. What are your rights and what options do we have to pay without them trying to take pensions, social security which is not much. Are they allowed to garnish and take monies simply because they are they state of illinois? Please inform me as much as you can.

      • Eric Olsen says:

        Social security and pensions are protected from State tax collectors. Twice the amount of your federal benefits including social security deposited into a bank account is protected from garnishment even by a state tax collector, no matter the source of the funds in the account at the time of garnishment. Eric Olsen HELPS

  3. shirley miller says:

    Are pension checks and social security protected from all or just some predators? For example, owing state tax or IRS, Are they able to just garnish or take these funds, no matter what? Can you answer me directly and give me some tips. Thank you Mr. Olsen.

    • Eric Olsen says:

      Social security and pensions are protected from all creditors. The only exception is for past due child support. It is possible for the IRS to garnish 15% of social security. That is not common but it does happen. Almost all lower-income seniors can qualify for non-collectable now status and have to pay the IRS nothing. We help people do that every day. The state can’t touch your SS or pension. Read my other answer

Leave a Reply

Your email address will not be published. Required fields are marked *


Speak To a Senior Living Advisor

Follow us on Twitter!