Budget Basics
Debt management Tips for Seniors
by Aleksandra Todorova
March 2004
4. Leave It Behind
What about simply ignoring the debt? Believe it or not, it can be worth considering.
"I was talking to a bankruptcy attorney just today," says Steve Rhode, founder and
former president of credit-counseling agency MyVesta, who now runs his own money
coaching practice, "and he told me he had advised a client that the best thing for
them to do was just let the creditors sue them."
Sue them? Sounds terrifying, right? It's actually not that bad. The worst thing
creditors can do in these situations is to put a lien on the property, which will
be sold to service the debts after the debtor dies. That's it. "You're not going to get kicked out of your house," says Rhode. And what if the debtor doesn't own
a house or any other property to be sold after their passing? "You're done," he
says. The debt is simply written off - it's not passed along to other family members.
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For many seniors, that would be the most logical solution, according to Rhode, although
it can take a psychological toll. "For their own self-esteem they feel they need
to take care of the situation. You can
tell them not to pay their debt, but it's
like advising them against everything they've always believed in." But if the choice
is between filing bankruptcy and losing a home, or staying put and ignoring the
debt,
then the latter sounds like a better solution.
Retirement income (pension, Social Security, IRA withdrawals) is also exempt from
creditors, says Eileen Muhlig, director of education at Consumer Credit Counseling Services of
Central New York. "Creditors can be as nasty as they want, but they cannot access retirement funds,"
she says. It's also important that seniors know their rights under the Fair Debt
Collection Act, which is detailed at the Federal Trade Commission's (FTC) Web site.
For example, it's illegal for collectors call before 9 a.m. or after 9 p.m. Violations
can be reported to the FTC.
5. Tapping Savings
Most seniors with debt problems have little in the way of savings. In fact, a report
by the Kaiser Family Foundation released last year found that 40% of Medicare beneficiaries
(people 65 and over) have less than $12,000 in "countable assets," which include
the value of their pensions, IRAs and cash savings. That said, for those who do
have money stashed away somewhere, it's not advisable to use the funds to pay off
credit-card debts.
Sure, it sounds like a good idea to eliminate 20%-interest debt with money that
earns just 4% or so a year. And it may seem especially compelling if the creditors
are calling. But think of it this way, says Rhode: "When you're retired, you're
crossing the Sahara Desert
and you've got a couple of jugs of water on the back of your camel. That's all you've
got - you can't replenish it." So keep the little you have and consider one of the
previously suggested options instead.
