Tuesday, October 26News That Matters

Rising Debt, Falling Income: How to Dig Out

“It can be depressing when they see their later years of life consumed with making payments and not making much of a difference,” he said. He recommended that retirees ask the credit card company for a lower interest rate.

Older adults often unintentionally increase their high-interest debt by placing expenses on cards that they could pay off in less costly ways, counselors say.

For example, medical bills typically charge little or no interest but turn into high-interest costs if placed on credit cards, Ms. Opperman said. Instead, she said, patients should call hospitals or other providers directly to work out an arrangement. “Many providers can set up repayment plans, and sometimes they will make concessions on behalf of the patient,” she said.

Retirees should also avoid taking out home-equity loans or lines of credit to pay off credit cards or medical bills, said Rose Perkins, quality assurance manager for CCCSMD, a credit counseling service in Columbia, Md. Though tapping home equity carries a lower interest rate than a credit card, a homeowner could put a home at risk if a job loss, the death of a spouse or illness made it difficult to pay off the lender, she said.

“The consumer has increased the amount they owe on their home, so if they cannot meet the new payment for any reason, they are at risk of foreclosure,” Ms. Perkins said. If other cost-cutting options do not work, credit counselors say, a retiree could downsize to a smaller home or take out a federally insured reverse mortgage. A credit counselor or a certified financial planner could help a homeowner decide if a reverse mortgage, which is a complex product, would fit into an overall debt-reduction plan, experts say.

In some instances, a nonprofit agency may recommend that a client enter a debt management plan. Counselors will negotiate with creditors to reduce interest rates and fees and to agree to a repayment plan, which could take up to five years to complete.