Tackling credit card debt in retirement

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Dear Debt Adviser,
I have $38,000 in debt on three credit cards. I am retired and have an income of about $3,100 per month. I have frozen two of the cards to keep the interest rate down. I have been able to make the minimum payments on time until this month. But, we are elderly and have a lot of medical expenses. I would appreciate your suggestions on this. Thank you.
— Darrel and Phylis

Dear Darrel and Phylis,
I am glad you wrote. It is much better to try and tackle $38,000 in debt before you have missed payments than after. Based on the information you provided, I have three courses of action for you to consider. First, do it yourself. Second, speak with a professional credit counselor. And third, speak to an attorney. These are not mutually exclusive, so you may end up using multiple resources.

I suggest you begin by contacting the issuers of the two frozen credit card accounts and asking if you qualify for a hardship program. With a small income, your age and high medical bills, they may have something that will help. Approach the third credit card firm with the same inquiry if you still need to. I want you to save them for last as they might increase your interest rates or cut you off, depending on how aggressive they are. As it’s your last credit card, you may want to keep it out of this, if possible.

You might also consider a reverse mortgage if you own your home and have built up a substantial amount of equity. Start with a conversation with a local community banker and see where that goes. A reverse mortgage can be a great idea if it fits your needs.

My second suggestion is for you to get some free professional help by contacting a reputable nonprofit credit counseling agency for a free budget analysis and a financial plan. A disinterested third-party can offer a perspective on how you are managing your finances. Sometimes, it is difficult for couples to see the places where they are overspending until they are pointed out by an unbiased person. For example, if you are currently using Medicare to cover your medical expenses without a supplemental health insurance policy, it may be less expensive to purchase a supplemental policy than to continue to pay your out-of-pocket expenses not covered by Medicare.

In addition, if you do not have prescription medication coverage you may qualify for assistance through the Partnership for Prescription Assistance. Your counselor should review all your expenses and your sources of income, and together you can decide the best way to move forward.

They may suggest repaying your debt through a debt management plan offered through a credit counseling agency. In your case, you would need to pay $735 per month for five years to pay off your $38,000 debt load. With a monthly income of $3,100, you would be spending almost 25 percent of your income to eliminate debt. Depending on your other expenses, you may not realistically be able to spend that much each month to eliminate the debt. If that is the case, you will need to explore other options.

Lastly, you should consider seeking the advice of a bankruptcy attorney. You can find a qualified attorney in your area at NACBA.com. Your attorney will review your finances, advise you whether bankruptcy is a viable option and if you qualify for a Chapter 7 bankruptcy where most debts are forgiven, or if you will need to file a Chapter 13 bankruptcy where debts are repaid as prescribed by the court.

Once you have made a decision on how to proceed with your credit card debt, keep in mind that to spend the rest of your retirement in peaceful bliss you will need to keep your expenses in line with your income. Follow your budget and if you don’t have one, get one from a credit counselor and avoid extending your income with credit. If your expenses drastically change, then you will need to revise your budget.

Good luck!

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