Dear Debt Adviser,
I retired nine years ago, and I bought a house three years ago. I am getting a retirement pension from my previous job and a little from Social Security. I have been robbing Peter to save Paul and keep up with my credit cards. I was not behind in any payments, but now am at the point where I am using my plastic to buy essentials, food, gas, etc. I cannot do this any longer. I have signed with a debt-relief company to help pay down these credit cards.
Hopefully I will be able to keep my house and car by doing this. Is this a bad way to go? I have a small, part-time job, but jobs in my area are very scarce. Is there any advice you can give me on these credit cards? I owe approximately $45,000 in credit card debt and earn about $2,600 a month. My savings are gone.
Most people still working think they can work until they choose not to. The reality is that many retire due to health, family issues, job change or company cutbacks and before they would have preferred. Your case sounds like you weren't quite prepared to make the leap when you did. However, you can't go back in time, so let's see what I can do to help keep you moving forward.
From the information you provided in your letter, it appears you did not have enough income once you retired and you used credit cards and your savings to make up the difference between your outgo and your income. For my readers, especially those who are contemplating retirement, using credit and savings to extend your income is a big no-no.
So as quickly as possible, you will need to make some adjustments and get your expenses in line with your income. I hope you are working with an accredited, nonprofit credit counseling agency when you say you are working with a "debt-relief agency." What you should expect from the agency with which you are working is a list of all your options, a repayment plan that is affordable and a spending plan or budget that shows you how to live within your current income.
If you did not receive these things from your current company, I would recommend that you make an appointment today with another agency to get a second opinion. Seek help from a member of either the National Foundation of Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. The member agencies of these organizations must meet strict standards and operate in the best interest of the consumer.
To help my retired readers who may not recognize the warning signs of financial trouble at first blush, here are some things to look for:
- You are purchasing basic necessities, such as food and gas, with credit because you don't have the cash.
- Your income does not cover regularly occurring, monthly expenses, and you must use credit or dig deeper into savings than you had planned to pay them.
- You are unable to pay off your credit card balances each month.
- You only make minimum payments on your credit card.
- You make card payments with cash advances.
- You would be in immediate financial trouble if your credit card terms changed to a higher minimum payment, a higher interest rate or a lower spending limit.
One last thing, if you bought your home three years ago, its value has probably declined. Depending on your down payment, you may be "upside-down." That is, you may owe more than the home is worth. Get an appraisal to find out. If you have some equity, I want you to look into a reverse mortgage. Also called a Home Equity Conversion Mortgage, this government program enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life, for a fixed term, in a lump sum or through a line of credit.
In so doing you may be able to eliminate your mortgage payment, lower your expenses and allow you more money to pay down your credit card debt. Even if you don't have enough equity today to qualify, as the economy recovers, you may be able to use this option at some point, so knowing more about reverse mortgages will not be a wasted effort.
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