A sobering reality: Roughly one out of four healthy American workers in his or her 20s will become disabled before he or she reaches retirement age, according to the Social Security Administration.
Dealing with a life-altering disability can be complicated enough but there are other considerations, particularly where income is concerned. For example, what if you have pre-existing credit card debt as well? You may not have the same level of income as you did before you went on disability.
It’s happened more often than not: Those on disability experience a spiral of credit card debt and other types of debt that can accrue more interest and continue to grow. In fact, credit card debt might even get to the point where it triples in size and doesn’t go away because those on the meager disability benefits aren’t able to make payments.
In this guide, we’ll dive into how to balance your income and debt if you’ve recently found yourself needing to rely on Social Security disability income.
Income from Social Security disability
Social Security disability payments usually start with your sixth month of disability, according to www.ssa.gov. You’ll get a notice that explains how much your disability benefit will be and when your payments start. It’s a good idea to calculate your budget once you figure out how much you’re getting in disability and understand how credit card debt or payments can be worked into that budget.
Social Security paid an average monthly disability benefit of about $1,234 to all disabled workers at the beginning of 2019, according to ssa.gov. Unfortunately, this amount is barely enough to keep a beneficiary above the 2018 poverty level ($12,140 annually).
Your disability benefits will continue as long as you continue to have the same medical condition and you can’t work. Benefits won’t necessarily continue forever, as you’ll be reviewed periodically to be sure your condition hasn’t improved, according to the SSA website.
Organize your budget: See how credit card debt fits in
Even if you are on disability, credit card debt doesn’t just melt away — you do have to pay it back.
A balance transfer credit card is one way to handle your credit card debt. When you do a balance transfer, you move a debt balance from one account to another account. The most common type of balance transfer is the transfer of debt from one credit card to another credit card to take advantage of a lower interest rate.
Credit card forgiveness
Again, credit card debt doesn’t just melt away. However, in extreme circumstances, such as in bankruptcy, your credit card debt can be forgiven.
Your debt will be sold to a debt collector if you eventually neglect to pay your credit card for a while. You’ll likely pay taxes on any portion of debt that a collector agrees to forgive. For example, you may owe $10,000 in debt, but you could agree to pay back only $8,000 in a lump sum or installments.
Consider talking to your credit card company to negotiate before a collection agency takes hold of it. Try your hardest to build a good rapport with your credit card company when you do end up having that conversation. Stick to the facts of your situation when you talk to your credit card company. For example, remind the credit card company that up until that point, you’ve always been able to pay your bills.
Avoid garnished wages
Credit card companies can garnish (take) your wages but they must take a few extra steps before they do that. They must sue you in court, get a money judgment and get a court order for your employer to deduct money from your paycheck. Often, you can get written notice and a hearing before your employer starts holding back some of your wages. You can file an objection.
Know your rights
As soon as you know you’re going to be on Supplemental Security Income and you know you’re going to have trouble making payments, the first step is to make sure your credit card company, debt collectors, collection agencies and any other similar entity knows what’s going on as soon as possible.
Notify your credit card company
Once you let your credit card company know about your disability and reduced income, it may not be a guarantee that the company will lower your rates or payments, but it’s worth a try. The credit card company may make every attempt to look at your situation on an individual basis and determine the most effective route to take, whether that’s getting a lower interest rate, a lower minimum payment or fees waived.
Debt collectors/collection agencies
Social Security is protected from debt collectors through federal law. Almost all states have laws that protect private disability as well. Even if a creditor files a lawsuit and obtains a judgment, they can’t take your disability income. Your bank must protect at least two months’ worth of SSI benefits by looking into your account history to see if you received these benefits by direct deposit in the last two months. However, if your account has more than two months’ worth of benefits, your bank can garnish or freeze the extra money, according to SSA.gov. The extra money garnished may be exempt from garnishment under federal or state law and you might have to go to court to have your money released.
You might also get your disability benefits on a prepaid card. If your benefits are loaded onto a Direct Express card or to another prepaid account, they are automatically protected from garnishment just like money in a bank account would be.
Consider legal action
How did you get your disability? Did it happen in the workplace or somewhere else where you could take legal action and be eligible for compensation? A disability might mean that it’s important to take action now, rather than wait till the future. Legal action could be the right route to take if there is something you can do to lessen the financial burden, particularly if your disability wasn’t your fault.
Consider other types of income
You may want to consider other types of income that can supplement your disability income. Even if you do decide to earn some extra money, you don’t have to use that money to pay old debt. Regulations stipulate that twice the amount of Social Security electronically deposited into your bank account is protected from garnishment. Any money from a part-time job is safe as long as the total in the account is less than twice the amount of the monthly Social Security deposit.
Be aware of income rules that can disqualify you for disability. Income “cut off” rules can simply mean that you earn an amount considered “substantial” by the Social Security Administration. In 2019, average earnings of $1,220 or more per month ($2,040 or more per month if you are blind) are usually considered substantial.
Depending on your disability, you may be able to do jobs that fit your capabilities, whether it’s a job that’s primarily an on-the-phone job, desk job or any other job that you can do. The SSA even recruits individuals with disabilities through the Careers at SSA section of its website, and the Ticket to Work program in particular is specifically for individuals who collect Social Security disability benefits.
The bottom line
Remember that in general, lenders want to help borrowers in need. Several large banks have increased efforts to reach out to customers when they’re early in the missed-payments cycle or before they become too delinquent.
Otherwise, one of the best ways to help yourself stay on track is to use a budget app. A budget app can help you meet goals and chronicle all outgoing and incoming money (including your incoming disability benefits) and help you stay on top of bills every month.