Debt Forgiveness for Seniors: 7 Plans of Action

The elderly Americans of today are experiencing significantly higher levels of debt than those of previous generations. In fact, according to a 2019 Congressional Research Service report, households led by adults ages 65 and older with any type of debt rose from 38% in 1989 to 61% in 2016.

Primarily, seniors experience debt from credit cards, medical costs and mortgages, but they are also the fastest growing group of student loan debt holders.

Luckily, there are several methods that result in debt forgiveness for seniors. Below are several plans of action to help you or your elderly parents reduce or eliminate debt.

The first step toward ridding yourself of debt is to create a plan of action. Common strategies include prioritizing paying off your lowest balances or balances with the highest interest rates.

Paying off high-interest debt will save you the most money long term, but paying lower balances can help you feel a sense of accomplishment and motivate you to pay off more.

Debt consolidation can reduce the interest rates of your debt and simplify the repayment process. The process involves getting a debt consolidation loan to pay off your other debts, thereby transferring any credit card, medical or other types of debt to a single lender.

Assuming your debt consolidation loan has a lower interest rate than your other loans, this could be a good way to cut down your debt in the long run. Keep in mind that you’ll need good credit to qualify and it’s ideal to be able to pay off a debt consolidation loan within three to five years.

Similar to debt consolidation, a balance transfer credit card allows you to move debt from one account to another. If you have high-interest debt but move it to a credit card with a 0% introductory annual percentage rate (APR) offer on balance transfers, it could help you save a considerable amount of money.

Taking out a reverse mortgage allows you to convert your home equity into cash without having to sell it. Your lender will make monthly payments to you that you likely won’t have to pay while you’re still living in your home. You can then use this money to pay off existing debts.

Before applying, however, it’s important to understand a reverse mortgage is still a loan. When you sell, move out of your home or die, you or your estate will repay the money you received. If you can’t pay, you may have to sell your home to pay back the amount borrowed.

Healthcare costs are responsible for a significant amount of senior debt. In 2022, 37% of older adults ages 65 and older were concerned about affording healthcare in the coming year.

One route seniors can take to combat medical debt is to draft a letter detailing their financial struggles. Oftentimes, medical providers will reduce the costs of debt for those experiencing financial hardship.

Some reasons you might cite for financial hardship include: loss of employment, divorce or natural disasters.

Since the worst-case scenario of a financial hardship letter is that your creditor says “no” to your proposal, there are no real cons to writing one.

When your debt is 90 or more days overdue, you can negotiate a debt settlement. Once creditors see missed payments accumulate, they might become more receptive to a settlement offer since it would mean they receive a partial payment as opposed to no payment.

To negotiate a settlement, you can either do so yourself directly with your creditors, or enlist the help of a debt settlement company. While a settlement company could charge you 20%-30% of your debt, doing it yourself requires research, patience and persistence.

If you’re successful, however, a debt settlement could decrease the amount of debt you owe by 40%-50%.

The most common forms of bankruptcy are Chapter 7 and Chapter 13 bankruptcies. With a Chapter 7 bankruptcy, your assets get liquidated to pay off your debts. However, if you are determined to be a no-asset filer, you won’t have to relinquish your possessions.

If you file for a Chapter 13 bankruptcy, also known as a wage earner’s plan, you create a repayment plan outlining how you’ll settle your debts with installment payments over three to five years. If you are living on a fixed income, this might not be the best option for you.

Since bankruptcy adversely impacts your credit and could result in the loss of some of your assets, it’s important to do your research to make sure this is the right option for you.

If you’re a senior in need of financial assistance, there are several resources that can come to your aid. While they may not directly pay off your debts, they can save you money or help you create a plan to reduce your debt.

It can be difficult to navigate the plethora of government assistance programs in place for seniors. If you’re having trouble figuring out what you qualify for, you can use Eldercare Locator, a service provided by the AOA that connects older adults to support services.

Since money can be a sensitive topic, it isn’t always easy to offer help. Organizing and reducing your parents’ debt can be emotionally taxing, but there are ways to make the process easier.

Here are some tips to help you along the way:

As you help your parents navigate their debts, communication is key. Not just with them, but with your spouse and siblings too. If you’re finding it difficult to help, consider enlisting the help of a financial advisor.

For older adults, debt from credit cards, mortgages and healthcare expenses can become overwhelming. Debt forgiveness tactics like financial hardship letters, loan consolidation and—if necessary—bankruptcy can help alleviate the financial burden.

The best tactic to reduce debt is to avoid it in the first place. Our Retirement Planning Guide can help you budget, save and achieve financial stability for an ideal living situation in your golden years.

To learn more about senior debt forgiveness and how to help your parents pay off their debt, check out our full infographic below.