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.”
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