The Credit Guy

4 options to tackle credit card debt in retirement


A good credit counselor can help you find the best possible path out of overwhelming credit card debt — including a debt management plan or even filing bankruptcy.

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Dear Credit Guy,
I am a retired federal employee for 22 years. Shamefully, I am $71,000 in credit card debt and have $5,000 in tax debt, which I am paying.

I have a daughter who lives with me, working part-time and who does not have a living wage and can’t afford to pay anything to me. I have another child in another state, who has been desperately unemployed for quite a while, and whom I try to send money to when I can.

I am desperate to consolidate credit card debt and really do not want to file bankruptcy, but will if so advised. Any advice on what to do or who to contact would be appreciated. – Catherine


Dear Catherine,
No one sets out to fall into debt, and you are certainly not alone with your feelings about your situation. But you have recognized the problem and are ready to take action, which is a step in the right direction.

You do have four options for addressing your credit card debt. Let’s explore them:

1. Continue to make minimum payments.
You can continue to pay your creditors as you have been. However, if you are only able to make minimum payments, you are looking at a very long road until you have erased your credit card debt.

I don’t know your interest rates or your exact minimum payment requirements, but I used the minimum payment calculator available at to recreate a possible scenario similar to yours. With an interest rate of 17 percent and minimum payments of interest plus 1 percent, I found that you are looking at over 40 years before this debt will be paid.

That is a long time for anyone, and especially for someone in retirement.

2. Ask creditors for a hardship program.
You also can contact your creditors to see what they can do to help you. Many companies offer internal hardship programs, with reduced interest rates and/or reduced payments for a period of time.

Unfortunately, these programs are typically short-term plans that last for six months to one year, and are not designed to help you get completely out of debt.

These plans are wonderful for someone who is going through a temporary job loss, but probably not your best option. But it certainly would not hurt to call your creditors and see what, if anything, they can offer you. They may have other long-term plans that could benefit you.

3. Weigh filing for bankruptcy.
You mentioned bankruptcy in your question, and that is certainly an option that is available to you. Bankruptcy exists in this country for many good reasons.

However, I am not an attorney and cannot give you legal advice. If you opt to file for bankruptcy, you will need to work with an attorney. You also will be required to obtain credit counseling before you file for bankruptcy. I believe you would benefit from working with a counselor before you make any decisions.

One thing I want you to know is that the only tax debt than can be discharged through bankruptcy is income tax debt. This could certainly factor into your decision about whether or not to seek bankruptcy advice.

4. Consider a debt management plan.
Let’s talk about another option available for your credit card debt, which is a debt management plan through a qualified, nonprofit credit counseling agency.

I mentioned earlier that you could call your creditors to see what they can offer you. Through a debt management plan, credit counseling agencies have pre-arranged agreements with most major creditors to reduce interest rates, stop late and over-the-limit fees, and often at a reduced monthly payment.

These plans, known as DMPs, are designed to get you out of debt in five years or less. I told you earlier that continuing on your own, as you have been, you are looking at more than 40 years to pay off your debt with minimum payments.

  • Again, using’s payoff calculator with an interest rate of 10 percent for 60 months, I found that your payment would be $1,508.54.
  • Your interest rates could be somewhat higher or lower than 10 percent, which might affect your payment, but this gives you a basic idea of how a program like this works.
  • In the earlier scenario, paying only the minimum every month, you would have had to pay more than $80,000 in interest alone! So, right off the bat you would be saving thousands of dollars with a debt management plan.
  • You will have minimal fees on a DMP, but those fees should be considerably less than what you are paying now in interest to your creditors.

Downsides of a DMP.
You need to know, however, that if you choose to enroll in a DMP, your credit cards will be closed and you will be discouraged from obtaining new debt while on the program.

I think you would agree that the last thing you need right now is more debt, so this is probably a good thing.

However, if you have been using your credit cards to supplement your income, you will need to figure out a way to cut your expenses or increase your income to make up for the loss of your credit cards.

As for your credit score, credit counseling itself does not affect your score, but closing accounts does. When you close accounts you will lose any available credit left on your cards.

However, if your cards are close to their limits, closing your accounts will only minimally affect your credit score. Maxing out cards is far more damaging in terms of your credit score, since you will have an extremely high credit utilization ratio, a key factor in calculating your score.

When a DMP is not a solution.
You should also know that a DMP is not always the answer. A good credit counselor will go over your entire financial situation before making a recommendation. This will include budgeting tips and the best way to handle your tax debt, because you will not be able to roll that debt into your DMP.

At the end of your counseling session, it could be that your counselor will recommend that you seek the advice of an attorney for bankruptcy protection.

My recommendation is that you visit the Federal Trade Commission’s page, “Choosing a credit counselor,” to help you find a reputable credit counseling agency that is licensed to offer pre-bankruptcy certification in your state.

That way, if bankruptcy is how you choose to tackle your debt, you already will have taken care of the credit counseling requirement.

Take care of your credit!

See related: 9 things you should know about debt management plans, Where to turn for help with overwhelming debt

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