Debt Forgiveness for Seniors: 7 Plans of Action
Since seniors live on a fixed income and are more likely to experience higher healthcare costs, it can be difficult for them to pay off debt. Our guide below will outline several strategies to help older adults reduce their financial burden.
- Written By Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Financial Wellness Foundation and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).Read More
- Edited BySavannah Hanson
Senior Financial Editor
Savannah Hanson is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.Read More
- Updated: December 5, 2022
- 9 min read time
- This page features 3 Cited Research Articles
- Edited By
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.
1. Create a Debt Reduction Strategy
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.
- Systemize the way you pay off loans
- Gives you a place to start if you have a lot of different debt balances
- Doesn’t take much effort to outline a plan of action
- No cons
2. Consider Loan Debt Consolidation
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.
- Possible lower interest rates
- Organizes your debts into one place
- Fixed repayment schedule simplifies the repayment process
- Might require payment upfront like closing or annual fees
- Need good credit to qualify for loans with reasonable interest rates
- If you miss repayments, lenders could charge you late fees, increasing your debt
3. Use a Balance Transfer Credit Card
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.
- Move all of your debt into a single account
- Potential lower interest rates and money saved
- Easy application process
- You may have to pay a balance transfer fee of 3% to 5% of your total amount transferred
- Some balance transfer cards have low limits, meaning you might not be able to transfer your whole debt to one account
- You may need a good credit score to qualify
4. Apply for a Reverse Mortgage
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.
- Can help you pay off debts in the short term
- Monthly payments made to you are normally tax-free
- A way to leverage your home’s equity without selling it
- Replacing one loan with another
- Could lose your home if you don’t repay
- Interest on reverse mortgage increases with each received payment
5. Draft a Financial Hardship Letter
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.
- Possible reduced debts
- Could secure lower interest rates
- Possible forgiven late fees
- No cons
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.
6. Negotiate a Debt Settlement
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%.
- When successful, could reduce debt by 40%-50%
- Delinquent payments will negatively impact your credit
- Debt settlement companies may charge 20%-30% of your total debt
- Negotiating a settlement yourself requires patience and persistence
7. File for Bankruptcy
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.
- Debt collectors will stop calling you
- Some or all of your debts could be discharged
- Bankruptcy can prevent legal action against you for defaulting
- You could potentially lose assets to repay your debts
- Attorney and court fees required to file could cost from $1,000 to $4,000
- Could drastically harm your credit score
Other Financial Aid Resources for Seniors
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.
- The Administration of Aging: The AOA is backed by the U.S. Department of Health and Human Services, offering resources for long-term care assistance, health insurance, legal aid and more.
- Medicare Savings Programs: If you’re eligible for a Medicare Savings Program, you may be eligible for aid in paying Medicare deductibles, premiums and copayments.
- The Low Income Home Energy Assistance Program: The LIHEAP helps seniors with low income pay heating and cooling bills and finance home repairs related to energy efficiency.
- Supplemental Nutrition Assistance Program: Through SNAP, seniors with low income can qualify for an Electronic Benefits Transfer (EBT) card that provides money to pay for food at grocery stores.
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.
Helping Your Parents With Senior Debt Relief
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:
- Start Now: If you suspect your parents are in financial trouble, it’s best to approach the conversation about it sooner rather than later.
- Assess Their Finances: Before you can help your parents alleviate their debt, you need a clear understanding of their current income, expenses and what they owe to who.
- Create a Repayment Plan: Work with your parents to put together a repayment plan that seems reasonable to them.
- Hold Them Accountable: Creating a budget and repayment plan won’t be effective unless your parents follow through with it. Make sure to check in with them regularly to make sure they’re making progress.
- Maintain Boundaries: While you might want to give your parents money, ensure you aren’t creating financial problems for yourself.
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.
3 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Congressional Research Service. (2019, September 11). Household Debt Among Older Americans, 1989-2016. Retrieved from https://sgp.fas.org/crs/misc/R45911.pdf
- Willcoxon, N. (2022, June 15). Older Adults Sacrificing Basic Needs Due to Healthcare Costs. Retrieved from https://ncoa.org/article/get-the-facts-on-economic-security-for-seniors
- United States Government Accountability Office. (2021, April). Debt Increased for Older Americans Over Time, but the Implications Vary by Debt Type. Retrieved from https://www.gao.gov/assets/720/713816.pdf#page=84