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Here Are 7 Debt-Relief Options To Organise Your Finances

Senior citizens need to relieve themselves of debt as that will help them live a dignified life in retirement. Hence, they must weigh the advantages and disadvantages before taking on additional debt and seek expert advice on paying off their debt

Meghna Maiti
January 5, 2024
Debt relief options

Debt relief options

The issue of debt among senior citizens is gaining prominence due to several factors. First, the increasing cost of healthcare poses a significant burden on elderly people. As medical expenses rise, seniors often find themselves grappling with unforeseen financial challenges, especially considering that healthcare support systems may not cover all costs. Therefore, we are now going to discuss the debt-relief options in detail further.

Additionally, the traditional joint family system, which once served as a safety net for elders, is slowly disappearing. As younger generations move out for employment opportunities or lifestyle changes, the elderly are likely to face financial responsibilities alone. This shift, coupled with changing economic dynamics, puts seniors at risk of financial strain.

Also, everyone might not be getting a pension, and many seniors depend on their savings and investments for retirement. Economic fluctuations can impact these savings, affecting the financial stability of elderly individuals.

Further, housing-related debt can be a concern, with some seniors still repaying mortgages or opting for loans to fund property-related expenses. High medical inflation and the need for home modifications in later years of life add to the financial strain which then turns into finding debt-relief options.

Lastly, the cultural norm of supporting family members, including children and grandchildren, financially, can lead seniors to take on additional debts. Moreover, they might have taken a substantial amount of debt to get their children educated and married. While driven by a sense of familial responsibility, this can contribute to their financial vulnerability.

Addressing the issue of debt among senior citizens requires a multi-faceted approach, encompassing healthcare reforms, social support systems, and financial literacy programs tailored to the unique challenges faced by the elderly population.

Says Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm, “For senior citizens with no active income, the only real option is to liquidate investments or sell off assets to settle any outstanding loans.”

So, here are seven ways in which senior citizens can manage their debts through these debt-relief options.

1] Budgeting: For seniors dealing with debt, starting with a budget is a good move for two simple reasons. First, a budget shows exactly where the money is going and will help them find out the main reason behind their accumulated debt. It will also allow for easy identification and reduction of unnecessary expenses, thus preventing further debt.

Second, a budget will help them determine how much money can be allocated towards paying off debts, thus providing a solid foundation for creating an effective repayment plan. It’s a practical way to assess whether there’s enough money for debt reduction, or if alternative solutions need to be explored. In any case, a well-crafted budget offers a clear snapshot of one’s current financial situation, thus enabling informed decisions on how to manage finances better. It’s a straightforward tool for gaining control over one’s finances and working towards a debt-free future.

2] Downsizing: For seniors dealing with debt, downsizing their homes is a smart move for two main reasons. First, a smaller home means lower costs—less mortgage, lower taxes, and cheaper maintenance. Selling a bigger home can also bring in additional cash to tackle debts right away.

Second, downsizing cuts down on bills, such as utilities and insurance, thus freeing up more money for them to pay off debts.

Downsizing is one lifestyle shift that will also help seniors enjoy their retirement without being weighed down by a big property. Emotionally too, it’s a positive change—getting rid of stuff, simplifying life, and having a home that fits their needs. In a nutshell, it’s a step towards financial freedom and a more relaxed retirement.

3] Credit Counselling: Credit counseling can help seniors understand their money situation by breaking down income, expenses, and debts.

Credit counselors can help seniors negotiate and talk with creditors, working on better repayment plans with lower rates of interest or combining debts for more manageable monthly payments. It’s a smart way for seniors to navigate the financial maze.

Credit counselors also assist in creating a practical budget, making sure that essential expenses are covered, and money is set aside for paying off debts. This hands-on approach empowers seniors to take charge of their finances and move towards a debt-free life. Beyond that, credit counseling includes lessons on smart money choices, thus giving seniors the tools to make wise financial decisions on their own. It’s not just about solving current debt issues; it’s an investment in long-term financial stability for seniors.

4] Debt Management Plan: A debt management plan is like having a money coach. You pay them once, and they handle paying all your different lenders. It’s way easier than juggling multiple payments. Your money coach or financial advisor might talk to your lenders and get you a lower rate of interest, thus saving you some cash. They could also make your monthly payments smaller, making it less stressful on your fixed income.

5] Debt Settlement: You could also consider going in for a debt settlement with your lenders. You can do it either alone or through a company. It can save you money and make things less stressful. However, watch out for scams, especially when dealing with companies. They might take your money and mess up your credit score. Even if things go well, settling your debt sticks around on your credit report for up to seven years. So, getting credit later might be a bit tougher. It’s a bit tricky—but helpful nevertheless.

6] Reverse Mortgage Loan: A reverse mortgage loan is a way for senior citizens to get some extra money, especially if they need help with daily or medical expenses. It’s like the opposite of a regular home loan. Normally, with a home loan, the bank owns your home until you pay them back. But with a reverse mortgage, you retain the home while the bank advances you money in lieu of your home. You or your successors can repay the loan to get the property back. The money can come either as a lump sum or in installments, such as every month or every few months. It’s a way for seniors to use the value of their homes to get some financial support without losing ownership during their lifetime.

7] Credit Card Balance Transfer: If you have too much credit card debt, a balance transfer with a low rate of interest for about 24 months can be a game-changer. It will give you time to figure out a plan, and every payment you make will go straight towards paying off the debt. But here’s the catch: Watch out for fees—they might charge you for the balance transfer and an annual fee. Also, be ready for a higher rate of interest later on for any remaining balance after the zero-interest period is over.

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