How to Pursue Debt Relief on a Fixed Income

Living paycheck to paycheck is one challenge, but living paycheck to paycheck while battling a mounting pile of debt is another one entirely. The average American household has more than $15,000 in credit card debt and more than $129,000 in total debt. For Americans living on a fixed income, especially senior citizens facing ever-increasing living expenses and medical bills, these figures can be particularly distressing.

Here are a few ways to seek debt relief if you're living on a low income or a fixed monthly income.

Budget, budget, budget. Nail down your fixed and nonessential expenses to see where you can cut. Record on a spreadsheet or on paper. Make sure to also budget funds for emergencies like medical incidents.

Educate yourself about credit. Boosting your credit score is a great way to pave a path to a more secure financial future. Nonetheless, few Americans understand how credit works or its impact on debt relief. A good way to start is by using less of the available credit on your cards and to pay off credit card debts first – otherwise, they'll build up over time. Also, keep in mind that the less credit you have, the easier it will be to control.

Consider your whole financial picture. Many seniors and those with financial trouble don't consider possible ways to help them improve cashflow to pay off debt or to get out of a tough financial situation. Here are some options:

  • Whole life insurance policies – If you've paid into a whole life policy, you can take a cash surrender loan to repay your debt. The insurance company will recoup the balance upon your death.

  • Savings and assets – Consider liquidating your assets like a home, vehicle, or other valuable personal property. You can also pull from your savings account to erode your overall debt balance.

  • Home equity/reverse mortgages – If you have substantial equity in your home, you can leverage this asset to improve your cashflow and tackle your debt. Consider selling your home and downsizing significantly. Alternatively, you can take out a home equity line of credit or second mortgage, or can borrow a loan against your home (called a "reverse mortgage"). However, each of these options contains risks, so be sure to carefully evaluate the pros and cons of each.

Consider debt relief programs. By enrolling in a debt management program, you can work with a credit counselor to pay down your debt in 3-5 years. A program counselor will review your financial situation and determine how you got into debt in the first place in order to help you avoid repeating your mistakes. Your counselor will then try to lower your rates and monthly payments through a consolidation plan or even try to settle with your creditors. A common method is the "snowball" method, by which your counselor will advise you to tackle the smallest debt first, and work your way gradually through the larger ones. If you're experiencing financial hardship, look for a program that provides a free budget analysis at the start and various credits for those on a low or fixed income.

If your financial situation is causing you stress and anxiety, thoroughly explore all of your options and take action as soon as you can to alleviate the burden. Then, you'll know with certainty that you're doing the best you can to get back on your feet.

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Monday, 18 November 2019

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