11 steps to help older debtors get out of credit card debt
Credit repair tips are different for mature adult credit card users
By John Egan
Before she sought help from the nonprofit Consolidated Credit Counseling Services Inc. about three years ago, Joyce Roberts' credit card debt had swelled from $10,000 to $15,000. This Massachusetts baby boomer had essentially gone bust.
Now Roberts, 51, pays $270 a month through Consolidated Credit Counseling in hopes of erasing her credit card debt within the next year. She no longer has any credit cards -- just an ATM card. Roberts says the debt mounted because she'd been making only the minimum monthly payments on her credit card bills -- something she advises others not to do.
"I was always a day late and a dollar short," Roberts says. "I've never gotten really close to being financially secure."
Once the debt is eliminated, Roberts plans to quit her part-time weekend gig at McDonald's but maintain her full-time job as a customer service representative at an optical supply company. Working 50 to 60 hours a week, she pulls in monthly income of $1,300 to $1,400. Roberts worries she'll work until she's 80 or 90 years old.
"I'm either going to get out of debt or die doing it," says Roberts, who is divorced and has two adult daughters. "I have high hopes."
Experts offer these tips for getting out of debt:
1. Draw a financial road map.
2. Set a daily spending limit.
3. Pay high-priority debts first.
4. Pare credit card spending.
5. Cash in available, nonretirement assets.
6. Find a low-interest rate credit card.
7. Return to work.
8. Look into a reverse mortgage.
9. Reassess your lifestyle.
10. Go to an accredited credit counselor.
11. Consider bankruptcy.
1. Draw a "financial road map" that includes setting up a household budget, says Cate Williams, vice president of financial literacy at Money Management International, a nonprofit organization that offers financial guidance and debt management services. For tips on creating a household budget, visit www.consumercredit.com/budget-sheet.htm
2. Set a daily spending limit to avoid impulse purchases. "A lot of people don't monitor their spending that closely. It's easy to get into trouble," says Liz Pulliam Weston, a personal finance author and columnist.
3. If you get into financial trouble, pay your higher-priority debts first, advises the National Consumer Law Center. Don't let yourself be pressured into making credit card payments at the risk of losing a home or car.
4. Pare your credit card spending. Keep one low-interest credit card for emergencies, Williams suggests, and close the rest of your accounts. "The credit card companies will live without you," Weston says.
5. Examine liquidation of some of your assets, such as a certificate of deposit. However, don't siphon your retirement assets to pay off credit cards.
"You don't want to throw good money after bad," Weston says. "I've talked to way too many people who drained assets that could have been protected in bankruptcy -- such as retirement funds and home equity -- only to end up filing anyway. They often spend years trying to pay bills that were ultimately impossible to pay, then spend more years recovering from the bankruptcy."
6. Transfer your balances to credit cards with lower interest rates, Weston recommends, or negotiate directly with your card issuers to obtain lower rates. However, negotiating works only if your credit scores are strong, she says, and you're willing to threaten to close an account if a card issuer doesn't comply with your wishes. Switching balances to lower-rate cards can cut total interest costs -- if you work to reduce those balances.
"The big danger is that instead, you'll use the low rates as an excuse to keep racking up more debt," Weston says, "or you'll just tread water paying the minimums and then your teaser rate expires, leaving you with costlier debt."
7. Consider returning to or remaining in the workforce to maintain or boost your income. "It's an amazingly obvious point, and a lot of people don't think about that," says Christian Weller, a senior fellow at the Center for American Progress and an associate professor of public policy at the University of Massachusetts in Boston.
8. If you own a home, look into a reverse mortgage, Williams says. A reverse mortgage is a loan against your home that you don't have to pay back for as long as you live there. You must own your home and be at least 62 years old to qualify. For more information about reverse mortgages, visit informational pages from the U.S. Department of Housing and Urban Development, the Federal Trade Commission or AARP.
10. Reach out to a legitimate credit counseling agency. For a list of reputable agencies, check with the National Foundation of Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.
11. If you recognize that your financial straits are dire, consult with an attorney about the possibility of filing for bankruptcy. "It's certainly not anybody's first choice. It's always a last resort," says Teresa A. Sullivan, a longtime bankruptcy researcher who is provost and executive vice-president for academic affairs at the University of Michigan.
Published: October 22, 2007
- 4 ways credit can boost millennials' charitable giving – With credit cards, it’s possible to support positive change with every charge ...
- How to avoid credit card problems aboard a cruise ship – Surprise holds, fraud freezes and going overboard with onboard expenses can all be avoided ...
- 6 end-of-year steps to protect your credit – With the big spending months closing in, take steps to keep your credit under control ...