There are many reasons why people carry debt beyond their 50s, and into their 60s and even 70s. It’s unrealistic to think it’s as simple as seniors living beyond their means. Many traditional industries have posted declining employment that has affected older workers – think of big layoffs like that of GM in Oshawa and cuts to government and media jobs. An unexpected reduction in income is hard to absorb overnight. Others are dealing with the dual financial challenge of putting their children through school or returning home to live with the financial burden of caring for aging parents. Once retired, a fixed income takes its toll, unable to keep up with both debt payments and living costs.

Do you have a debt problem?

Here are some debt warning signs that you may need to speak with a professional to get your debts under control:

1. Your debt balances are growing as you continue to use debt to make ends meet.
2. You are only making minimum payments on credit card balances.
3. You rely on a line of credit to pay the mortgage, rent, or make bill payments.
4. You are thinking of cashing in your RRSP to pay down debt

What happens when you don’t pay?

If you stop making monthly payments against credit card debts, utility bills, or any loan, your creditors can take several steps to collect.

Collection calls are the first step. Many seniors find it stressful having a debt collector continue to call and send collection notices. Calls from debt collectors can create added stress if you are also dealing with medical or family issues.

Missed payments will lead to a negative mark on your credit report. Delinquent accounts in your credit history can lead to higher interest rates on new credit or when renewing a mortgage, and you could find any new credit application denied.

Can creditors garnish my pension?

In most cases, no. However, once your pension is deposited in your bank account, your funds can be at risk. If you owe money where you bank, your bank can seize the funds directly from your account and apply them to your unpaid credit card or bank loan.  There are other exceptions as well to when creditors can garnish pension income with the most common being CRA for unpaid taxes.

Avoid making poor borrowing choices

Seniors carry the highest credit card balances of any age group we help, many with balances of $10,000 or more. More than half carry balances over $30,000. This is credit card debt build up over a lifetime. If you have balances on more than one credit card, are using one credit card to live while making minimum payments on the other, it is time to consider the options at the bottom of the article for debt relief.

Seniors are also increasingly turning to payday loans. The problem is if this month’s retirement income isn’t enough to pay the bills, taking out a payday loan isn’t the solution. Having to pay back that loan out of your next pension cheque puts you at a loss the following month.

Pre-retirement debtors should think carefully before taking out a debt consolidation loan to consolidate credit card and other debts. A Home Equity Line of Credit (HELOC) may be attractive as payments are interest-only and as a result are quite low. Beware, however, that if you fail to make any refinanced mortgage payment, you are putting your home at risk. Make sure such a solution deals with all your consumer debt and that you can afford the monthly payments. In any debt consolidation scenario, don’t let your credit card balances grow again.

Similarly, there has been a rise in reverse mortgages which raises concerns about the number of seniors tapping into their home equity to pay for living costs.

How can seniors get help with paying down debt?

If you are struggling with debt, the first step is to talk with a regulated debt professional like a Licensed Insolvency Trustee. Your trustee will review several possible debt solutions with you, including:

Doing nothing. If you have no assets and your only income is pension income which cannot be garnished, you can tell most creditors ‘I can’t pay’ and do nothing. As mentioned, there are a few exceptions like CRA, but if you can deal with the calls, this can be a good choice if your income is limited.

Work out a payment plan with a credit counsellor. Non-profit credit counsellors can help you arrange a plan to repay everything you owe over a period of up to five years. They might even be able to stop interest charges. If you are on a reduced income and you owe simple debts like credit card debt with small balances, consider talking with a credit counsellor.

Consider government debt relief programs that can help seniors. The final solution may be to consider talking with a Licensed Insolvency Trustee about government debt relief programs for seniors.

If you own a home and have some equity, but not enough to refinance, you could make a proposal to your creditors through a government debt relief program called a consumer proposal.

A consumer proposal is also an option for those who have a higher pension income or additional income from employment or outside assets.

If you are on a fixed income and have little in assets, you might consider filing bankruptcy to stop collection calls; however not all seniors should file bankruptcy.

Be careful not to drain your RRSP for debt repayment

If you have money set aside for retirement in an RRSP, RIF or pension plan, talk with a Licensed Insolvency Trustee about your options before using those funds to pay off debt. Most registered retirement plans are protected in a bankruptcy or consumer proposal in Canada.  We caution people against draining their retirement nest egg if this only partially solves your debt problem.

Get a free consultation

If you are a senior with debt you can’t afford to repay, contact us for a free consultation. You may be surprised to know that almost one-third of the people we help are over the age of 50.  You are not alone. Contact us for help today.

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The problem with carrying debt into retirement is that it must be serviced with less income than when seniors were working full-time. Some adapt by making only the minimum monthly payments on credit cards, which leads to a downward debt spiral, a journey that often ends with seeking assistance from a Licensed Insolvency Trustee.

If you already have debt when you retire, and your income drops when you retire, it may become impossible to service your debt and pay your living expenses. It may not even be your fault. Many seniors financially help their adult children who are struggling to get on their own two feet. That can often deplete their retirement nest egg, and even lead to new debt.

What can seniors do if they have debt problems?

Seniors facing financial problems have unique issues compared to younger Canadians:

• most are on a fixed or reduced income including social assistance, pension income and sometimes support payments;
• they need to protect assets like their home and RRSP’s since they will have little ability to replace these investments before or during retirement.

Here a summary of your debt relief solutions if you have debts, and all of your income is from pensions.

First, you can do nothing, and stop paying your debts.

If you have no assets, and if all of your income is from pensions, in most cases your creditors will be unable to garnishee your pensions. This is because pension income is not considered wages and as such cannot be garnisheed. Practically you could do nothing and the creditors would have no way to enforce any legal actions against you.

Of course doing nothing doesn’t eliminate your debt. Your creditors may still phone you and send you collection letters, and they may take you to court, so you haven’t solved the problem; you have simply ignored them. If you open a new bank account at a bank where you have no debts, and if you are not stressed out by the phone calls, and if you have no other assets, doing nothing may be the correct option for you.

Should you sell or refinance your home?

If you own a home you could sell your house and use the proceeds to pay off your debt. If the costs to carry your home including property taxes are beyond your means it may make financial sense to downsize to a smaller home or apartment. However most seniors do not want to sell their house to eliminate debts. 

It may be possible to utilize the equity in your home to pay off existing debts. You may be able to refinance with a traditional second mortgage or reverse mortgage. With a debt consolidation loan you borrow at a bank at reasonable rates to pay off your high interest debts, like credit cards. The lower interest rate may allow you to devote more of your monthly payments to principal instead of interest, so you can repay your debts on your own. Refinancing through a second mortgage will work if your debts are less than the equity value of your home and you can afford the monthly payments.

Refinancing may not be suitable if you have significant debts. Mortgaging the equity in your home is a big risk if you do not eliminate all of your unsecured debts and you cannot keep up with all of your debt payments.

Your third option is to make a proposal to your creditors

If you can’t afford to repay your debts in full, another viable option is a consumer proposal. In a consumer proposal you repay a portion of your debts. The amount you repay is negotiated with your creditors by a consumer proposal administrator like Hoyes Michalos, and depends on your income, your family size, and your assets. For example, if you have $50,000 in unsecured debts, it may be possible to negotiate a settlement where you pay $500 per month for 50 months, or roughly half of the amount owing, or perhaps even less.

If you have some equity in your home but not enough to cover all your debts, you can use this equity to make a proposal to your creditors while keeping your home.

As a last resort, file bankruptcy

If even a consumer proposal is more than you can afford, the final option is personal bankruptcy. Bankruptcy discharges your unsecured debts, but there is a  cost of bankruptcy which you will need to be able to afford on any reduced income.

For a retiree, the cost of bankruptcy may simply be too high, and the “do nothing” approach may be the best option. However, the stress of the situation may lead you to decide that a consumer proposal or bankruptcy is the correct option.

Protecting your RRSP

RRSP’s and RRIF’s are excluded from seizure in a bankruptcy or consumer proposal with the exception of contributions made within the last year. Since most seniors are no longer making RRSP contributions this limitation may not apply. Since your retirement funds are already protected by bankruptcy law, it is important that you talk to a bankruptcy trustee before draining your retirement savings to pay off debts. Again, if by doing so you are not dealing with all of your debt problems and you are jeopardizing your retirement, you trustee can talk to you about whether or not bankruptcy or a consumer proposal are a better choice.

As you can see, there are many factors to consider when deciding how to deal with your debts. The answer to the question: “Does it ever make sense for retirees to go bankrupt?” depends on your situation.

Here’s my advice: contact one of our local licensed debt experts near you so we can discuss your options. Our consultations are free, and there is no obligation. We can help you build a plan to deal with your debt, reduce the stress and anxiety and improve your retirement.

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Payday Loan Use Increasing

Let’s talk payday loans for a bit. As anyone who has followed my blog posts, or listened to my rant on Debt Free in 30, knows I have a particular hatred for these types of credit products. Our recent Joe Debtor study proves that I have good reason.

Source: Hoyes, Michalos

If you are using payday loans there is an increased risk that you will need to file for insolvency.

Our study showed that payday loan use among our clients is on the rise.

They owed on average $5,174 in total payday loan debt, or 195% of their monthly take-home pay. So how did they end up borrowing more than their pay in payday loans?  On average, a payday loan debtor actually had 3.9 payday loans. The average loan size being taken out was $1,311 and this too is increasing.

Source: Hoyes, Michalos

How is someone able to borrow from that many payday loan companies? Simple – no credit checks. If payday lenders don’t register the loan, you can easily walk into another lender to borrow a second, third or yes, 23^rd loan.

Payday Lenders Targeting Seniors

What bothers me even more is that more seniors are borrowing against their pension income. Payday loan companies specifically advertise that they will loan against CPP, ODSP, retirement benefits, pensions – you name it, they list it.

Today 21% of all seniors filing insolvency have a payday loan.

Payday loans are a scourge to the average debtor, and seniors are no exception. Seniors have an honest desire to pay off their debt and will do anything to try to make that happen. Most end up using payday loans to meet an immediate, necessary expense, or pay a bill, because debt payments have used up most of their income.  Once the payday loan comes due, the crisis is not over. Debt payments remain and in fact, are now even higher than before. This creates a cycle of borrowing that leads to the average senior taking out almost over three payday loans before finally admitting they need a better solution, which often means restructuring their finances by filing insolvency.

For more information on our study findings contact:

Douglas Hoyes, CPA, Licensed Insolvency Trustee
Ted Michalos, CPA, Licensed Insolvency Trustee

1-866-747-0660

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Unfortunately the conventional wisdom is wrong.

Our 2017 Joe Debtor study shows that the number of seniors who carry debt into retirement is growing. soon one in four Canadians will soon be 65 or older according to Statistics Canada reports. With a growing average household debt-to-income ratio, increasing costs in everyday living, it’s not surprising that the number of retired insolvent debtors is growing.

Debt is Just More Acceptable

There is no question our cultural attitude towards debt has changed, even among older Canadians. Almost everyone now uses credit cards, whereas even 20 years ago most seniors did not. For many seniors this apparent increase in debt may just be the normal ebb and flow of how our economic system works.

In fact, a Statistics Canada survey found that 1 in 4 retirees with debt owed less than $5,000, certainly not a number to be worried about. Even pushing the numbers a little higher, almost 60% owed less than $25,000 which may just represent the final few payments on their mortgage, a few monthly purchases, and perhaps a vacation or house upgrade or two.

But Should It Be?

Our Joe Debtor study shows that seniors have the highest debt-to-income levels out of all insolvent debtors. Insolvent seniors (60+) are currently sitting at a 226% (2018 update) unsecured debt-to-income ratio. That is huge.

But is this high debt just because seniors are affluent? It’s true that both lower income seniors and seniors with a high net worth were less likely to carry significant debt. The problem is with those in the middle, neither low income nor high net worth, who showed the highest propensity to carry significant debt into retirement.  In other words it’s the average senior that has the biggest debt problem.

It’s important for seniors to remember that their income will decrease after retirement. So payments and a lifestyle that is easy to maintain today, may not be feasible after retirement – and you definitely shouldn’t use debt to pay for it.

Bankruptcy Among Seniors On The Rise

Insolvent debtors aged 50-59 in our Joe Debtor report were  more likely to have an RRSP, it was still only half. So 50% of seniors who filed insolvency had an RRSP, but 50% did not. Many people struggle to pay off their home, help dependents, and pay off debt, but neglect their finances. This can be dangerous for someone on the brink of retirement because an unexpected illness can lead to a drop in income sooner than expected.

Over the course of six years, we’ve seen the number of insolvent seniors rise from 9% of our study to 12%. In our most recent study 56% of seniors were retired and a significant portion of them (47%) held tax debts. Without knowing your options prior to retirement, it can be easy to deplete your savings to try and recover from your debts. The best way to ensure prosperity in your retirement is to make sure you don’t carry debt into it.

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