10 Tips for Seniors to Get Out of Debt
If you’ve found yourself in the dubious position of having racked up a ton of credit card debt, you may feel like you don’t have a lot of options. While these tips are specifically geared towards the senior community, anyone can follow them.
Tip # 1: Draw up a financial road map
This certainly includes a household budget, but should also factor in retirement. If you’re in debt and have nothing saved, you really need to consider that option so you don’t spend all of your golden years working.
Tip # 2: Set a daily spending limit
Set a daily spending limit – as strict as is needed to get yourself out of debt. Most people don’t monitor their spending that closely, so it’s very easy to go overboard. I recommend deciding what your daily spending limit is, then pull out the cash for the month and set it aside in an envelope. Once the money is gone, you’re done spending for the month.
Tip # 3: Prioritize debts
If push came to shove, which debts would you pay and which would you let slide? The ultimate goal is to get everything paid off of course; however, you’ll want to prioritize your debts so that in the event something happens you have a game plan. You don’t want to pressure yourself to pay credit card debt at the risk of losing your home or car.
Tip # 4: Cut down your credit card spending
It’s amazing to me the number of people who complain about being in debt, yet they don’t stop spending on their credit cards. And, if it has turned into a vicious cycle of paying the debt only to use it again to pay other bills, you’re not helping yourself. So, if you’re trying to get out of debt – stop using the cards! Put them away in a safe place where you won’t be tempted to pull them out.
Tip # 5: Debt Snowball
Whether you do this the traditional way or Dave Ramsey’s way, you’ve got to start putting money towards these cards. My personal recommendation would be to order the cards from highest interest rate to lowest and apply the most to the highest interest rate card until it is paid in full, paying the minimums on the other cards. Then, move to the next card and continue what you were paying on the previous card plus the minimum of that card until it is paid off. If you’re a fan of Dave Ramsey, you can order the debt from smallest amount owed to largest amount owed and work in that order instead.
Tip # 6: Liquid assets
First and foremost, this is not a suggestion to liquidate your retirement savings. If you have IRAs, pensions, 401(k)’s or anything else of the like, leave them be. What I’m talking about here are things like certificates of deposit (CDs). If you’ve got one or two in holding, you may want to consider liquidating them to help pay off some of the debt. The reason you don’t want to touch your retirement accounts is because they are protected in a bankruptcy. While I don’t think bankruptcy should be the first thing on anyone’s mind, the reality is that some people can’t make it without one. If by this point you think a bankruptcy might be in your future, you’ll want that money to recover with.
Tip # 7: Work
If you’ve already retired, you may want to consider going back to work. If you haven’t, you may want to stall retirement just a little longer. Surprisingly, many seniors never consider this option. Instead, they struggle with their fixed incomes and think that’s the best they can do. While some are physically incapable of going back to work, if you can it might be a good idea to consider. Injecting your monthly budget with additional cash flow will help alleviate some of the stress.
Tip # 8: Home Equity or Reverse Mortgage
Personally, I don’t care for the reverse mortgage option. I think your house is your biggest asset and to turn around and sell it to the bank to pay off debt seems wrong somehow. But, if there is no other option, then at least it’s available. First I’d recommend looking into a home equity, but I will point out that this option should only be if you know you can control yourself with the credit cards once they’re paid off. If you’re just going to run them up again, it doesn’t do you much good to pay them off because now you’re saddled with extra debt. But, a home equity can help if used properly. A reverse mortgage is a secondary option and is exactly as it sounds – a reverse mortgage payment. The bank makes payments to you every month for as long as you agree and at the end of the term, they own the house. Still, it’s decent income for those who need it and don’t really care what happens to their house.
Tip # 9: Reassess your lifestyle
If you’re living beyond your means, you need to reconsider that. If the house you live in is too much for just you to keep up with, consider selling and buying a smaller home, or even renting depending on your situation. If you’re spending money on frivolous things that don’t help reduce your debt, you need to consider your options and make some changes.
Tip # 10: Credit counseling and bankruptcy – LAST RESORT!
These should always be considered as a last resort. But, if you’ve done all of the above and still find yourself struggling, it may be prudent to seek either of these alternatives. Be sure to consult an attorney or reputable financial advisor for specific advice beforehand.
What other advice would you give seniors struggling to get out of debt?
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