The Senior Citizen Debt Crisis: How To Cope With Debt In Your Golden Years

  • By Jillian Taylor-Mancusi

Are you experiencing the senior citizen debt crisis first-hand?

If so, you’re not alone. Financial debt for seniors is quite common. Thousands of elder Canadians across the nation are struggling to meet their monthly expenses.

As a seasoned Licensed Insolvency Trustee with over four decades of experience, Leigh Taylor has seen nearly every type of financial situation and circumstance imaginable. He has also witnessed the more recent trend of baby boomer debt problems.

The interview transcript below will help you understand more about how seniors get themselves into debt trouble – and what you can do today to improve your financial situation.

Leigh, thank you so much for taking the time to speak with me today. What is the number one complaint you get from senior citizens coming in for debt advice?

Leigh Taylor:  Many seniors come in confused as to why they are struggling financially. You see, these once hard-working taxpayers believe they have done everything right. And now – all of a sudden – they just can’t afford their monthly expenses. Then the collection calls start coming in. They feel overwhelmed and don’t know where they’ll find the money to make it out of debt.

What’s the reason for the upward trend in baby boomer debt problems?

Leigh Taylor: The reasons vary. Living on a fixed income can be difficult, to begin with, but in today’s world, retirement benefits simply have not kept up with the cost of living. RRSPs have had low-interest rates for the past several years.

What’s more, many seniors have minimal – if any – savings. Before they retired, when they were working, it may have been difficult to put money towards their retirement. Be it a late-in-life divorce, the illness of oneself or a loved one, or a layoff, it just may not have been possible. So when they can’t make ends meet, they turn to credit.

Finally, one of the biggest reasons seniors find themselves indebted is that they owed money before retiring. That’s one piece of advice I have for those who are preparing for retirement: Try to eliminate your debt before you retire.

What about debt accumulation during retirement? Are seniors spending lavishly?

Leigh Taylor: Baby boomers tend to engage in more leisure activities during their retirement than previous generations. Gone are the days when retirement meant you could “live on less.” They want to enjoy themselves. Yet now that they are retired, they don’t have the income flowing in to support those activities.

However, what we see more of is seniors lending a financial helping hand to their loved ones. For example, they cosign on their child’s loan for a home. If the child defaults, the parent ends up going into debt.

Is retirement debt more complicated to deal with than other kinds of debt?

Leigh Taylor: Yes, it is. That’s because retired seniors live on a fixed income. This means their income stays the same every month. So if they need to pay down debts, they will have less money to live on. That’s why many seniors end up paying only minimum balances on their credit cards. They need the rest of their income to buy groceries, pay their utility bills, and so on. However, by paying minimums only, they never make real headway on the principal balances owed. And those balances just keep on getting bigger every month.

So if a senior goes into retirement with debt – or racks up debt while in retirement – are they pretty much done for financially?

Leigh Taylor: No. Just because you are retired and experiencing debt issues, you do not need to give up. Seniors – like all Canadian debtors – can seek out help and improve their situation. Being overwhelmed by financial anxiety does not have to be their reality.

What would you counsel indebted seniors to do?

Leigh Taylor: If you’re a senior citizen in debt trouble, I would suggest you follow these steps:

#1: Contact a Licensed Insolvency Trustee.

This is the number one thing a senior can do today that will improve their financial situation. Licensed Insolvency Trustees (LITs) are the only professionals authorized by the Canadian government to help debtors file a consumer proposal or bankruptcy. They are also able to provide the full range of debt relief options, including simple budgeting, debt consolidation, and debt management. Whatever debt relief assistance you need, an LIT can help you with it.

And keep in mind, these are arguably the best financial advisors in the nation. LITs are:

  • licensed and regulated by the federal government,
  • required to take continuing education,
  • and required to abide by strict ethical rules and regulations with respect to the provision of debt services, so you know they have your financial interests at heart.

And here is the best part. Your initial consultation with an LIT is free. At this meeting, your LIT will review your financial circumstances and provide you with all debt relief options available to you. You will also hear their opinion on which is the best one for you. You aren’t pressured to take any action whatsoever.

#2: Do not take out new debt. (And yes, this includes payday loans.)

If a loved one asks you to help them by either lending them money or cosigning a loan, refrain from doing so. Be forthright with yourself, your family, and your friends about your situation. If you can’t afford to gift your family member the money they need, you can’t afford to loan it or co-sign for it. The best gift you can offer your loved ones is your financial security (so they don’t end up having to take care of you in the future).

And stay far away from payday loans, even if you think you don’t have enough to make it to the end of the month. Payday loans are high interest, short-term, predatory loans that will only put you deeper into debt. Contact an LIT before doing anything that may further impair your finances.

#3. Do not cash in your RRSPs or other retirement benefits to pay down your debts.

In Manitoba and Ontario, your pension and RRSP’s are exempt from seizure by your creditors. These monies are meant for your retirement, not your debts. Contact an LIT to figure out what your best options are, so you can help to preserve what you’ve saved for your future.

#4. Consider a consumer proposal or bankruptcy.

These are great options for those seniors who cannot afford to repay their debts in full.

A consumer proposal allows you to repay only a portion of your debts over a period of up to five years. You can be sure that the monthly amount you pay is one that is manageable since your LIT will determine the amount based on your income, and negotiate it for you with your creditors. When the proposal is completed, 100% of the overall debt is discharged, (even though you may have only paid a portion).

Bankruptcy is simply a procedure you can go through to discharge your unsecured debt so that you can focus on your living expenses only. In a bankruptcy, you may pay small monthly amount for the duration of the bankruptcy – 9 months in most cases. The amount you pay is determined by your income and family situation.

What are the benefits of a consumer proposal or bankruptcy for seniors?

Leigh Taylor: Once you file either a consumer proposal or bankruptcy, the collection calls will stop. Your unsecured creditors are no longer able to contact you directly or enforce any debt recovery action against you.

And importantly, pensions, RRSPs, and RIFs are all exempt from liquidation in a bankruptcy (except those contributions made within the past year). This means you will still have those resources in the future if you haven’t already depleted them to pay down your debt or help your loved ones.

Are there any disadvantages to filing a consumer proposal or bankruptcy?

Leigh Taylor: One of the major disadvantages for Canadian debtors contemplating a consumer proposal or bankruptcy is that it will affect their future ability to obtain financing. But most seniors are not looking to make big purchases – like a new home or car. These are the types of purchases that require taking out a loan. And if you’re considering bankruptcy, you’re probably behind on your bills anyway and your credit rating has already taken a hit. The advantages of a clean financial slate and relief from the anxiety and stress of debt collection calls far outweigh the potential negatives for most seniors.

Contact A Licensed Insolvency Trustee Today

Bankruptcy doesn’t have to be your only option. The sooner you reach out for help, the more options you may have available. Let us help you achieve the financial relief you seek. Schedule your free initial consultation today.

We look forward to hearing from you.

Photo by Ihor Malytskyi on Unsplash

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