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Getting out of debt


With fixed incomes and limited retirement savings, many older adults fall gradually into debt or start out retirement in debt. This article offers strategies and tips for digging out of debt and staying out, including contacting a credit counselor, repairing bad credit, downsizing, consolidating, refinancing, negotiating medical debts, and, in a last-case scenario, filing for bankruptcy.

Contact a credit counselor

With fixed incomes and limited retirement savings, many older adults fall gradually into debt or start out retirement in debt. Many nonprofits and senior advocacy organizations offer credit counseling attuned to the unique needs of older people. A trained counselor will work with the person to set a budget and come up with a debt management plan, which might include freezing credit lines until existing debt is paid off or reduced. Credit counselors may also advocate for their clients to the clients’ banks and credit card issuers, and may be able to negotiate lower interest rates or monthly payments. 

Repair bad credit

Having a bad credit score affects a person’s ability to borrow money or refinance loans. In some cases, bad credit can transfer to higher interest rates or higher auto insurance rates. Repairing credit is an essential step to digging out of debt. Although it can be a slow and tedious process, it’s vital to address bad credit and repair it as much and as soon as possible.

  • Get a credit report. Consumers have the right to a free credit report from each of the three major credit reporting agencies every year. Cross-check these to make sure there aren’t any inaccurate accounts or charges.
  • Fix or dispute bad charges. Sometimes a charge shows up that wasn’t made by the person. Work with the reporting agency to remove any accounts or charges that are inaccurate.
  • Pay smaller balances first. Credit reports factor in the number of open accounts as compared to the total debt. Paying off one account completely can give a significant boost to a person’s credit score. 
  • Close unnecessary accounts. Closing accounts with zero balances or accounts that are no longer used can add points to a person’s credit score.


Many older adults live in homes that have more space than they need, or own cars that they no longer need. Since home and auto payments are often the largest payments in any budget, it may make sense to reduce those costs.

  • Housing. Moving out of a home that has more space than a person needs can be a difficult decision to make. That said, stepping down from a single-family home with spare bedrooms and higher energy costs can save money on more than just mortgage or rent. Moving into a senior home, smaller apartment, or even a condominium reduces heating and cooling, maintenance, and cleaning costs. 
  • Transportation. If the older person no longer drives, selling off the car can inject some cash into the coffers and help pay off debt. Consider alternate forms of transportation, especially if the person drives infrequently or might be at the stage in life where it’s time to give up the keys.
  • Other possessions. As part of downsizing—whether moving in with a relative or finding a smaller home—reducing clutter can also bring in cash. Many older adults have antique furniture or other possessions that might be sold to pay off debts.


Although it might seem counterintuitive to add credit cards when you’re in debt, many cards offer no-interest balance transfers for a certain time period, up to 18 months. Another option is to consolidate all debt into a single new loan. By negotiating a single loan with a consolidation company, it’s possible to make one single payment per month on all debts. This offers convenience and may include a lower interest rate than some credit cards charge. It can, however, significantly lower a person’s credit score, so consider negotiating directly with individual creditors before taking this option.


For those with limited or no income, taking out equity on a home can offer much-needed cash. A home equity loan comes with some risks, though, so be sure the repayment requirements and benefits are understood. Taking out a home equity loan might be a good idea if the rate of interest is significantly lower than the interest rates on credit cards or other debts. 

In addition, some older adults might be able to take advantage of a process commonly referred to as a reverse mortgage. In this instance, individuals receive monthly income in return for the equity on their home. In essence, they sell their home in advance, taking the money in installments. Before agreeing to this, however, the person should be made fully aware of what they are agreeing to and what they are giving up.

Negotiate medical debts

Medical bills in the United States are quite often padded so that the service provider can negotiate with insurance companies. This leaves the patient with enormous leftover bills. The hospital or medical provider is often willing to work with patients to pay off debt, and will often forgive some or even all remaining balances. Consider submitting a financial hardship letter, demonstrating how much the patient is able and willing to pay in good faith. 

File for bankruptcy

Filing for bankruptcy is a drastic step, and should be considered as a last resort if other options are exhausted. There are two main types of bankruptcy for older adults: Chapter 7 and Chapter 13.

Chapter 7

The most common form of personal bankruptcy is known as “liquidation bankruptcy.” In Chapter 7 filing, a person’s non-essential assets are liquidated—that is, sold off to generate cash—and used to pay off existing debts. Chapter 7 is only recommended if a person has enough assets to cover a substantial amount of debts, and if the person’s income is below a certain bar. In some cases, especially if the person has a high amount of equity in their home, the person who files for bankruptcy runs the risk of losing their home to pay off other debts. 

Chapter 13

Chapter 13 bankruptcy is less severe and more comparable to loan consolidations. In Chapter 13, individuals work with the court to compose a three- to five-year plan to pay off debts with a payment plan. By doing so, the person can protect their assets from foreclosure, seizure, and repossession.

Related information

Dealing with financial challenges

Discussing driving with an older adult

Getting help from a financial expert

Stretching your money

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