Many more seniors are carrying substantial consumer debt into retirement. What happens when you can’t pay back that debt? What options do seniors have for debt relief?
There are many reasons why people carry debt beyond their 50s, and into their 60s and even 70s. It’s unrealistic to think it’s as simple as seniors living beyond their means. Many traditional industries have posted declining employment that has affected older workers – think of big layoffs like that of GM in Oshawa and cuts to government and media jobs. An unexpected reduction in income is hard to absorb overnight. Others are dealing with the dual financial challenge of putting their children through school or returning home to live with the financial burden of caring for aging parents. Once retired, a fixed income takes its toll, unable to keep up with both debt payments and living costs.
Do you have a debt problem?
Here are some debt warning signs that you may need to speak with a professional to get your debts under control:
- Your debt balances are growing as you continue to use debt to make ends meet.
- You are only making minimum payments on credit card balances.
- You rely on a line of credit to pay the mortgage, rent, or make bill payments.
- You are thinking of cashing in your RRSP to pay down debt
What happens when you don’t pay?
If you stop making monthly payments against credit card debts, utility bills, or any loan, your creditors can take several steps to collect.
Collection calls are the first step. Many seniors find it stressful having a debt collector continue to call and send collection notices. Calls from debt collectors can create added stress if you are also dealing with medical or family issues.
Missed payments will lead to a negative mark on your credit report. Delinquent accounts in your credit history can lead to higher interest rates on new credit or when renewing a mortgage, and you could find any new credit application denied.
Can creditors garnish my pension?
In most cases, no. However, once your pension is deposited in your bank account, your funds can be at risk. If you owe money where you bank, your bank can seize the funds directly from your account and apply them to your unpaid credit card or bank loan. There are other exceptions as well to when creditors can garnish pension income with the most common being CRA for unpaid taxes.
Avoid making poor borrowing choices
Seniors carry the highest credit card balances of any age group we help, many with balances of $10,000 or more. More than half carry balances over $30,000. This is credit card debt build up over a lifetime. If you have balances on more than one credit card, are using one credit card to live while making minimum payments on the other, it is time to consider the options at the bottom of the article for debt relief.
Seniors are also increasingly turning to payday loans. The problem is if this month’s retirement income isn’t enough to pay the bills, taking out a payday loan isn’t the solution. Having to pay back that loan out of your next pension cheque puts you at a loss the following month.
Pre-retirement debtors should think carefully before taking out a debt consolidation loan to consolidate credit card and other debts. A Home Equity Line of Credit (HELOC) may be attractive as payments are interest-only and as a result are quite low. Beware, however, that if you fail to make any refinanced mortgage payment, you are putting your home at risk. Make sure such a solution deals with all your consumer debt and that you can afford the monthly payments. In any debt consolidation scenario, don’t let your credit card balances grow again.
Similarly, there has been a rise in reverse mortgages which raises concerns about the number of seniors tapping into their home equity to pay for living costs.
How can seniors get help with paying down debt?
If you are struggling with debt, the first step is to talk with a regulated debt professional like a Licensed Insolvency Trustee. Your trustee will review several possible debt solutions with you, including:
Doing nothing. If you have no assets and your only income is pension income which cannot be garnished, you can tell most creditors ‘I can’t pay’ and do nothing. As mentioned, there are a few exceptions like CRA, but if you can deal with the calls, this can be a good choice if your income is limited.
Work out a payment plan with a credit counsellor. Non-profit credit counsellors can help you arrange a plan to repay everything you owe over a period of up to five years. They might even be able to stop interest charges. If you are on a reduced income and you owe simple debts like credit card debt with small balances, consider talking with a credit counsellor.
Consider government debt relief programs that can help seniors. The final solution may be to consider talking with a Licensed Insolvency Trustee about government debt relief programs for seniors.
If you own a home and have some equity, but not enough to refinance, you could make a proposal to your creditors through a government debt relief program called a consumer proposal.
A consumer proposal is also an option for those who have a higher pension income or additional income from employment or outside assets.
If you are on a fixed income and have little in assets, you might consider filing bankruptcy to stop collection calls; however not all seniors should file bankruptcy.
Be careful not to drain your RRSP for debt repayment
If you have money set aside for retirement in an RRSP, RIF or pension plan, talk with a Licensed Insolvency Trustee about your options before using those funds to pay off debt. Most registered retirement plans are protected in a bankruptcy or consumer proposal in Canada. We caution people against draining their retirement nest egg if this only partially solves your debt problem.
Get a free consultation
If you are a senior with debt you can’t afford to repay, contact us for a free consultation. You may be surprised to know that almost one-third of the people we help are over the age of 50. You are not alone. Contact us for help today.