Help for Seniors with Debt Problems

Imagine this scenario:  You are earning a good income, handling your monthly bills well, and using your credit cards or a line of credit to make purchases occasionally. You have a little debt piled up but nothing too scary. Then, your income falls off a cliff. Suddenly, you are no longer able to pay down the debt you have amassed. Then you start to slip on your minimum payments to your creditors. The debt continues to grow due to the high interest rates on your credit cards and loans. And what was once a simple arrangement with your creditors becomes much more difficult.

That is exactly the scenario many seniors face when they stop working fulltime and begin receiving their CPP (Canada Pension Plan) and OAS (Old Age Security) pensions from the government. Dealing with debt in retirement can be very tough.

Today, an increasing number of seniors are finding themselves dealing with stressful debt issues. These can be profoundly serious since many seniors are out of the day-to-day workforce and are living on their fixed government incomes. There are many reasons why seniors end up having trouble with debt. One reason is that many people do not have adequate retirement savings.

There was once a time where most people who worked full time were able to comfortably retire due to their company pension plans. Unfortunately, these days, fewer people have such generous pensions.

Another reason for senior debt problems is that many seniors want to help their children or grandchildren financially. For many people, the cost of living is increasing while salaries are not rising to match. This can make getting married, buying a home, or having children a serious financial strain. Many seniors want to help their kids weather these expenses, but this generosity sometimes comes at the expense of the seniors’ own financial stability.

Whatever the reason for a debt crunch in retirement years, there are myriad ways for seniors to avoid debt problems and improve their financial situations. Here are some tips that might help:

As you approach retirement age, it is important to develop a plan for how you will afford your expenses. The amount you will need to live will depend on your situation and your expectations. For instance, you will need to have more money available if you are making monthly mortgage payments, than if you already have your mortgage paid off.

You will also need to think about the sort of lifestyle you will want to have in retirement. If you are planning to travel, for instance, you will need to have more money saved than if you picture spending your days tending to your garden. This is also where you will need to determine if you want to help your children or grandchildren out financially. If you decide that you wish to provide some financial assistance to them, this will change your retirement numbers.

The more preparation and planning you can do before reaching retirement age, the stronger the financial position you will find yourself in once you stop working.

Your budget as you approach retirement – and especially as you enter retirement – will look dramatically different from how it did while you were working. You will have fewer expenses, for instance. If you no longer need to spend money on commuting costs (such as public transit or gasoline and parking), work clothing and make-up, lunches out with coworkers, you will see a sizable drop in those types of expenses. Of course, once you stop working, your income will drop as well.

This means that it is essential you create a new budget for your senior lifestyle. Determine how much you will earn in retirement from all sources (savings, pension, government benefits, etc.) and then rework your budget so you can afford your living expenses on your new income.

As you get closer to retirement, it is a clever idea to try to combine your budgeting expertise with some aggressive debt repayment. You should aim to enter retirement with as little debt as possible. To do this, you will want to cut your expenses where possible using that budget you revised and use any “found money” in your new budget for your debt repayment.

However, while debt repayment is certainly important, it is also important to stop taking on any new debt. Not only is it incredibly difficult to pay off your debt while you are still adding to it, but any debt that you take on as a senior will follow you into your retirement years. This can put you in a tough situation. You can avoid this by trying to stay away from debt as much as possible as you approach retirement age.

You may realize that it is possible to change your lifestyle in retirement and live differently than you did while you were working. For instance, you might decide that you and your spouse no longer need two vehicles and can sell one. You may even decide to downsize to a smaller home (such as a condominium) now that your children have left home. These changes can save you substantial money, so think about making these types of lifestyle changes if they sense for you.

By thinking through your situation clearly and potentially making some dramatic life changes, you can restructure your financial situation and enjoy your retirement years without financial stress.

If, after reworking your budget and cutting back on the use of credit, you find you are still dealing with debt pressures then the team at Farber are here to help you. Just CLICK ON THE FREE CONSULTATION BUTTON, below, or give us a call today to arrange to meet with one of our licensed professionals. We are here to listen – and to help you!