Debt Consolidation for Seniors

Many seniors struggling with debt in retirement may discover that debt consolidation is the right fix. But each situation is different, and there are other options to repay debt that could be more suitable.

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Senior adults are carrying more debt than ever before. In the past, it was common for U.S. adults to reduce their debts as they aged, but in recent decades this trend has reversed.

The good news is that there are a lot of ways to manage and reduce debt. One option, known as debt consolidation, involves using a new loan or credit card to pay off multiple debts. When done correctly, your chosen method for consolidating debt should help you create a clearer path to being debt-free.

Debts that Can Create Financial Issues for Older Adults

Today, the top two types of debt held by most seniors are medical bills and credit card debt.

Unfortunately, studies show that these unsecured debts — debts that are not backed by collateral— are among the most stressful types to carry. The stress of carrying any debt at all can damage the physical and mental health of seniors.

» Learn More: Financial Assistance for Those Suffering From Mental Health Conditions

This is just one reason older adults are concerned about retiring with debt. In fact, a survey from AARP and the Ad Council found that paying off debt was the highest financial priority among people aged 40 to 59, even more so than saving for retirement.

Tip: Before sending money to debt collectors, seniors should check and see if they’re judgment proof, meaning they’re exempt from legal action by debt collectors. People who live on fixed government benefits or minimal income often fall into this category.

Debtors should also check to see if their state’s statute of limitations has passed since they last made a payment toward the debt, since they may no longer be legally required to pay.

Options to Consolidate Debt

Each debt consolidation product comes with unique rates, fees, and requirements. The best solution is the one that will help you achieve your primary financial goal, whether that’s to reduce your monthly expenses, lower your interest charges or speed up your repayment process.

Debt Consolidation Loans

One way to consolidate debt is by taking out a debt consolidation loan. To do so, you’ll need to apply and qualify for a personal loan, and then use it to pay off your pre-existing debt.

Several studies have shown that one of the most popular reasons to take out a personal loan is to manage existing debt. Personal loans usually have much lower interest rates than other unsecured debts, particularly credit cards, which can make them a good option for consolidating.

Before applying, be sure to shop around and compare rates and fees. There are many different loans available, so you’ll want to make sure you apply for a product that gives you an affordable monthly payment, and ideally reduces your overall cost of borrowing.

Reverse Mortgage

When you take out a reverse mortgage, you’re essentially getting a home loan but backwards. Instead of getting a lump-sum of money up front, and paying it back over time, senior homeowners can receive monthly payments from their lender, and pay the money back in a lump sum that’s due when they sell the home or pass away.

Reverse mortgages can be an option for someone who desperately needs help managing debt, since the loan will provide a monthly infusion of cash. But you’ll want to carefully research the pros and cons of reverse mortgages , since there can be serious drawbacks, and this field of lending is known to be rife with scams.

On the plus side, a reverse mortgage can help you cover bills and stay in your home, and your credit scores may not be a factor in qualifying. That’s good news for seniors looking for a loan with bad credit. The downsides include turning your home equity into debt, paying hefty up-front fees, and the possibility that your heirs may be forced to sell the home in order to cover the lump sum after you pass away.

Like any loan type, there are specific qualifications you must meet in order to qualify for a reverse mortgage. They include the following:

  • You must be at least 62 years old
  • You must have significant equity, meaning your mortgage balance is roughly 50% or less of your home’s market value
  • The home is your primary residence
  • You must meet with a HUD-approved financial counselor

Note that there are additional requirements to qualify for each of the four unique types of reverse mortgages.

Home Equity Loan

Homeowners with equity may have additional options when it comes to consolidation loans. With a home equity loan, you can cash out some of the equity in your home and receive it as a lump-sum payment. Then, you’ll pay back the loan in monthly installments, plus any interest charges and fees.

One reason homeowners use home equity to consolidate debt is that home equity loans often have far lower interest rates than other types of debt. If you have a lot of equity, you could potentially even use it to pay off all your other debts and significantly reduce your future interest charges, and you’ll only have to manage one new loan.

On the downside, you’ll convert your hard-earned equity into debt. And if your loan payments aren’t affordable, the loan could increase your risk of foreclosure. That’s one reason lenders need to assess your financial situation before determining if you qualify.

Balance Transfer Credit Card

Credit cards can offer another means of consolidating debt. If you can get approved for a new credit card, with lower rates, a more affordable monthly payment than your current debt(s), transferring your debt balances onto a new credit card could be a good option.

You’re most likely to qualify for a low-interest credit card, or even a zero interest balance transfer credit card, if your credit scores have improved since you opened your current accounts.

Just make sure all the numbers add up before applying. You may have to pay a one-time balance transfer fee of 3%-5% when you pay off your debts with the card, so check to see what the creditor charges. You’ll also want to make sure you’re clear what the interest rate will be after any introductory, zero interest period ends.

Not sure if you should use a loan or a credit card to consolidate your debt? Learn more about each option in this article on debt consolidation loans vs balance transfer cards.


We’ve covered a few options that involve taking on new financing, but you don’t necessarily need to apply for a new credit card or loan in order to consolidate debt. Here are a few other ways you might consolidate your debt yourself, whether by trying one option or combining all three:

  • Downsize: If you have a vehicle, exercise equipment, tools, furniture, jewelry or other valuables you don’t need, consider selling them to pay off debt. You could even downsize your home if it’s too big for your current needs.
  • Borrow: Reach out to family or close friends who might be willing to offer you a loan. Make sure you’re clear about how much their help would mean and discuss when and how you’ll pay the money back.
  • Make a debt payoff plan: Commit to a new, more aggressive strategy for tackling debt. Revisit your budget to see how you can cut costs and/or increase income. Then, consider tackling the highest-interest debts first, with any extra cash you can drum up. If you want professional guidance coming up with a plan, a certified credit counselor can help.

What to Consider Before Consolidating Debt

There are a number of ways to go about consolidating debt, but it can be difficult to determine which is best for you. Before applying for a new loan or credit, make sure you can answer these questions.

  • What’s my objective? If your budget is tight, you’ll want to focus on bringing your monthly debt expense down. But reducing your monthly debt costs can lead to a longer overall repayment term and more interest fees. Alternatively, you may be open to paying more each month, if your ultimate goal is to reduce your interest charges and become debt-free faster.
  • How much will it cost? Make sure you understand all up-front fees and ongoing fees. These can include anything from loan closing costs to balance transfer fees, prepayment penalties and fixed or variable interest rates, all of which could potentially add to your debt balance.
  • What can I qualify for? Having great credit can help you qualify for more financing at a lower cost. If your credit needs work, or if you’re otherwise unable to qualify for financing, take some time to review your credit reports or address other eligibility issues before applying.
  • Will this put me at risk? Quick financial solutions often involve high risk. Make sure you understand the potential consequences, and you can afford all fees and payments, before agreeing to put your credit, your home or other collateral on the line.

Alternatives to Debt Consolidation

Debt consolidation isn’t the only way to manage and pay off debt. The following alternatives don’t involve taking on new financing, but they do have varying advantages and consequences:

Debt Settlement

Debt settlement involves negotiating with your creditors to pay less than the full amount you owe. You can attempt to make these negotiations yourself, or you can work with a debt settlement company that negotiates on your behalf.

If you choose to pay for these services, you’ll hand over management of your debt accounts to the settlement company and send them monthly payments, often for 36 months or more. Eventually they’ll offer some of the funds to your creditors as lump-sum settlements.

Going this route can occasionally save people some money, but it’s difficult to compare debt settlement to debt consolidation. You may not need good credit to qualify, but among the many drawbacks, you can accrue significant late payment penalties and fees from your creditors, your credit will take a beating and you’ll risk being sued for a wage garnishment.

A better alternative to consider is nonprofit debt settlement, which does not involve negotiating with creditors. Instead, some lenders may agree to accept as little as 50% to 60% of what you owe, if you commit to paying that amount through a three-year payment plan.


Bankruptcy is a legal process that can help debtors get out from underneath unmanageable debt. If you file for Chapter 7, you could have your unsecured debts forgiven and put a stop to creditors’ efforts to get money and property from you.

Chapter 13 bankruptcy, on the other hand, involves setting up a court-facilitated repayment plan for your debt. These plans last three to five years. If you’re comparing bankruptcy to debt consolidation a Chapter 13 will be most similar to some consolidation options, since it can get you into an affordable repayment arrangement.

Before you file, there are serious consequences to consider. Bankruptcy can damage your credit more than any other financial event, since it shows creditors that you’ve failed to pay your debts as agreed. The record of your bankruptcy will also stay on your credit reports for as long as 10 years, making it difficult to qualify for new credit cards, loans or even apartments, in the short-term.

You’ll also have to pay legal fees in order to file bankruptcy, and you’ll need to prove that you qualify for court intervention based on your income.

Debt Management Programs

Debt management programs are a solution offered by nonprofit credit counseling agencies. These agencies can work with your creditors to get you relief—including things like reduced interest rates or lower payments—on your unsecured debts.

If you qualify for a plan, you’ll make a single payment to the credit counseling agency each month for a period of three to five years, and the agency will distribute the money to your creditors. Some agencies provide this service for free and some charge a fee.

Debt management plans can be particularly beneficial for people with high-interest credit card debt, and can be a lower-risk means to becoming debt free than many debt consolidation options. Plus, you’ll get advice and guidance from a financial professional.

But there are drawbacks to consider. A credit counselor can help you understand how your credit scores may be negatively impacted in the short-term, and explain how you can improve your scores over time with a debt management plan.

Helping Your Parents with Debt Relief

Money is one of the main topics we’re not supposed to discuss at the dinner table. Taboos about money can make it difficult for family members to communicate and support one-another, but opening up the discussion may be the only way to ensure your senior parent has the help they need.

If you’re interested in helping your senior parent avoid debt or manage debt, consider offering the following types of support:

  • Contacting creditors together, to ask for income-based payment plans
  • Attending a credit counseling session with them, to take notes and ask questions
  • Helping them choose and apply for a debt consolidation loan
  • Offering a gift of money or a loan, or buying/giving them needed items
  • Coordinating with family members to provide financial support

Financial Assistance Resources for Seniors

Financial help is available for people at all stages of life, but older adults have unique needs. Seniors are carrying more debt into retirement age, but there’s no shortage of great financial resources available. Here are a few places to look for assistance:

About The Author

Sarah Brady

Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). Sarah can be contacted via


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