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Debt forgiveness for seniors: 5 strategies to consider

More older adults are grappling with crushing debt. Here are ways to tackle it head-on.

Debt forgiveness for seniors: 5 strategies to consider

It doesn’t matter where a senior lives, what they’re interests and hobbies are or where they worked before retiring, there’s one thing that many currently have in common: They’re grappling with debt. 

According to the National Council on Aging (NCOA), more older adults are retiring with or carrying larger amounts of debt than ever before. The organization’s most recent data found that60% of seniors hold debt, and “that number likely hasn’t fallen and will even rise amid inflation and economic uncertainty,” explains Nate Tsang, CEO at stock research platform WallStreetZen

As an attorney that specializes in crisis Medicaid planning, Brad Biren, Esq., chief operating officer of IQ MOP, a financial education group in Des Moines, sees this daily. But he says to remember that debt isn’t necessarily a negative thing. “Debt is not a four letter word, but rather an under-leveraged opportunity,” he says. “Some debt is beneficial to have as it creates a history of your finances.”

However, he acknowledges that there are varying levels and different kinds of debt. “The dose is the poison,” he says. “So, too much monthly, high-interest debt is a more appropriate definition for ‘in debt’ in the elderly years.” 

Here, why more older adults than ever are grappling with debt as well as debt forgiveness strategies for seniors.

“Too much monthly, high-interest debt is the definition for ‘in debt’ in the elderly years.”


Why seniors might be struggling with debt 

Cliff Auerswald, a mortgage broker, financial expert and President of All Reverse Mortgage, explains that senior debt is unfortunately a common problem that’s quickly getting worse. He says that of those who are 65-84 years old, 41% now hold credit card debt compared to just 27% in 1989. “The total owed has almost tripled,” he says, explaining that being in debt at this age involves spending at a deficit every month — and using debt to supplement spending they can’t afford on their budget.

So why are so many seniors taking on more debt and struggling to pay it down? He says it’s due to a combination of factors including:

  • Increased cost of living
  • Supporting adult children
  • Divorce losses 
  • Lifestyle inflation (an increase in spending when a person’s income goes up)

There’s also what Mary Kate D’Souza, attorney, co-founder and chief legal officer of Gentreo, an estate planning company, describes as a current “epidemic of financial exploitation” of seniors. “Scammers cause their victims to transfer their money and or mortgage their assets or get loans to pay for the various schemes,” she says, and seniors “can quickly lose everything and accumulate debt.”

Meanwhile, the number one cause of bankruptcy in the United States is medical debt, points out Jay Zigmont, a certified financial planner and founder of Live, Learn, Plan.

Health care costs are compounded by late fines and fees related to misplaced late payment notices that seniors may try to pay off with plastic, says Biren.

And if that wasn’t enough, seniors have limited options to increase their income and are typically on fixed budgets and contending with variable expenses, adds Tsang. All of this might sound rather defeating, but according to Tsang, it is possible for older adults to reduce or even eliminate debt at any age.

Debt forgiveness options for older adults 

Fortunately, there are some options seniors — likely with their family caregiver — can try to address their financial burden.

1. File for bankruptcy

The two most common types of bankruptcy are Chapter 7 and Chapter 11, explains Zigmont. “In a Chapter 7 bankruptcy, everything a person owns is ‘liquidated’ — aka sold — to pay down the debts,” he says.

A Chapter 11 bankruptcy, he explains, just reorganizes a person’s debt and sets a plan and schedule for them to pay it back. “Keep in mind that not all debt can be discharged in bankruptcy — including IRS and student loan debt,” he adds.

Pros and cons: The potential perks include the court either discharging or reorganizing the debt, and debt collectors have to stop contacting your older loved one.

But according to Zigmont, bankruptcy should be a last option, because it can cause a big hit to your credit. This takes seven years to come off. 

Biren also points out that it requires having money upfront: You or your loved one need to have funds to pay for the attorney first. 

“In a loan consolidation, you are opening a line of credit for the exact amount you owe.”


2. Enroll in a loan consolidation program

This can involve your senior loved one taking out a loan to pay down their existing debt or just paying a company to “consolidate” their debts. Most companies that offer consolidation charge a fee for them to put all debts together, negotiate them and then a senior makes one payment to them, explains Zigmont. 

The way this works: The consolidation company handles the debts at the outset, allowing the older adult to make one simple payment. 

Pros and cons: This is a very enticing option with one giant pitfall — it kills a senior’s credit score, says Biren. “In a loan consolidation, you are opening a line of credit for the exact amount you owe,” he notes. “That one consolidated account will be a behemoth of debt with little credit to keep [a senior’s] credit score buoyant.”

Zigmont says this option is basically moving your debt around, and you may be better off negotiating with your senior loved one’s debtors directly. While in consolidation, many debts may go unpaid and also have a negative impact on a person’s credit report, he adds. 

To get started, Zigmont suggests looking for local, non-profit organizations. Then, make sure you and your older loved one understand the fees and exactly what you’re getting for whatever you’re paying. 

3. Take out a reverse mortgage

If your senior loved one’s house is paid off or mostly paid off, they may be able to get a percentage of their house’s equity out. This percentage changes with age and a variety of limits, according to Zigmont. “Depending on the structure of the reverse mortgage, you may get a lump sum out or payments over time,” he adds. The mortgage is then paid off when the owner eventually sells the house.

Pros and cons: The main perk is that a senior will get money immediately. The downside is that they are paying fees and interest to get that amount, and their house will be sold to pay for it, says Zigmont.

There are many reverse mortgage companies, so start by asking your local bank and then compare options.

4. If the debt is medical, write a financial hardship letter

When a patient composes a letter explaining their financial hardships, they can potentially negotiate down medical bills for pennies on the dollar, according to Biren. “Never pay full price for major healthcare bills that are already egregiously padded,” he says. “In fact, most times, the balance may be outright forgiven.”

Pros and cons: The hospital or medical provider may be willing to let your senior loved one apply for “charity care” or lower the amount owed. However, Biren notes that the letter can also help to establish a pretense for their lack of credit worthiness so the balance could be sent in whole to a collection agency upon receipt. “That is not common by any means,” he says. But it’s another reason to choose your words wisely.

To get started, put together a moving letter but it must be honest. “Do not deceive, defraud, or threaten,” he says. 

5. Negotiate debt forgiveness

Old debt — typically defined as over 90 days unpaid — can be negotiated, according to Zigmont. Debt collectors buy this debt for pennies on the dollar and then spend their time trying to get it from a person, he explains. So they may be willing to accept less in order to get something.

Pros and cons: Although your older loved one can end up paying less to settle debt, they need to have the cash in hand to immediately pay the agreed upon sum. They — or you, on their behalf — also have to negotiate directly with debt collectors, which he notes can be challenging.

But overall, this is Biren’s favorite option, if you have the money on hand. 

To get started, try negotiating directly with the debt collector. “The way it works is that if you have a lump sum of money, you may be able to negotiate the amount owed down to 50% or less,” says Zigmont. “Always get it in writing and never give them access to your loved one’s bank account. Send a physical check.”

The fact of the matter is that being in debt as a senior has become the norm, points out Zigmont. So if you’re facing an uphill battle supporting your older loved one through debt management, remember there is nothing to be ashamed of, and your older loved one is far from alone.