Sadly, a new report provided to the Financial Post from ratings agency Equifax Canada Inc. shows that the average debt for consumers aged 65 and over has been climbing by approximately 7% per year, the largest increase for any age group. At the same time, although household debt levels have been growing at their slowest pace since 2003, debt accumulation by those aged 65 and over is up. Reports show that seniors, on average, gained more than $6,000 in new debt in each of the last three years. Senior finances should be reviewed and considered!
Most debt comes from consumer spending and seniors are entering retirement more indebted than ever. While their debt levels may look relatively low compared to other ages, the amounts still have the potential to impact their futures and affect their standard of living in retirement.
Senior debt – What can you do?
When their children move out, many seniors who own their own homes decide to downsize, both their belongings and their housing. If you are dealing with sizeable debt, now is the time to sell your house and look for an apartment or smaller home which you can purchase or rent. This way, you will not only have the cash from the sale but if you rent, you will also no longer have to pay property taxes as well as maintenance on a house.
Senior Debt Options- Reverse Mortgages
A key option is a reverse mortgage. With reverse mortgages, home equity is converted into cash, which is received on a monthly basis, in a one-time lump-sum payment or as a credit line to use whenever it’s needed. A reverse mortgage doesn’t need to be paid back as long as the owner continues to live in the house. In most cases, you must be at least 62 years old and have a fully paid off mortgage to be eligible. An option worth considering.
For some options on who is offering reverse mortgages in the U.S. click here.
Click here for some Canadian specific insights.
Senior Debt – Leverage Life Insurance
For those who have a permanent life insurance policy with cash value, one option is to consider taking a cash surrender loan, which is a loan that doesn’t have to be paid back. The cash value of the policy is a dollar amount the owner would be paid at any given time should they cancel the policy. It’s also an investment account that can be borrowed against. The longer the policy has been in place, the more cash value is in place. The owner can take up to 96% of it out through a cash surrender loan. The insurance company will collect the loan balance, plus interest, after the owner dies.
Senior Debt – Postpone Retirement
More seniors than ever are deciding to work through part if not most of their retirement. For some, it is because they can’t afford to retire. For others, it’s because they enjoy staying busy with a variety of hobbies and work. If any of this sounds like you, you are joining an ever growing group of seniors who will continue to work past retirement age. Not to worry, postponing retirement can be simply working part time at what you love and reducing your debt load. Not a bad thing!
Senior Debt- Declare Bankruptcy
Filing bankruptcy can be particularly tough for seniors. Bankruptcy doesn’t always solve the problem. A senior may end up in a position where they get rid of the credit card debt, but then have no money or credit cards. Not ideal but certainly an option to discuss with your family or a financial advisor or an experienced bankruptcy lawyer.
Senior Debt – Ignore the Debt
What about ignoring the debt? It can be worth considering. The worst thing creditors can do in this situation is to put a lien on your property, which will be sold to pay the debt after you die. More of an impact to your beneficiaries but certainly an option. If you don’t own a house or property, the debt is written off. For many seniors, that would be the most logical solution. Talk to a financial advisor or your family.
Senior Debt – Credit Cards
Many seniors use credit cards to pay for unexpected expenses. This strategy can only work for a while. Over time your credit cards reach the maximum borrowing limits. Credit card companies can also increase the minimum monthly payment and charge fees and other penalties for late payments. This can make it even harder to get your finances under control. Credit cards add to your debt and are not a method to get it under control.
Talk to your family about other options to gain control of your senior finances or consider sourcing a financial advisor to see what the best options for you may be. It doesn’t have to be doom and gloom but rather considering options.
And knowing there is so much senior debt makes for a case to consider the senior frauds articles we have posted that might explain why seniors are looking for quick fix or quick earning!