In This Economy, Seniors More Open to Financial Products That Consolidate Debt

 

Meta-Tag: Economy forces older Americans to be more open to financial products for debt consolidation including reverse mortgages and debt settlement.

In the past, few older homeowners would have thought of using their home equity to consolidate their credit card debt. But today's economic environment has changed the way many in their 60s, 70s and 80s look at the debt they still carry.

According to a recent report by the MetLife Mature Market Institute (MMI) and the National Council on Aging (NCOA), more older homeowners are starting to tap their housing wealth, using home equity loans and reverse mortgages to manage and consolidate their debt.

"Our research on Baby Boomers indicates that they are more open than previous generations to tapping home equity and considering reverse mortgages to help fund their retirement years," says Sandra Timmermann, Ed.D, director of the MMI. "We found that more older homeowners are using home equity to increase income security, to enhance financial resilience to deal with unexpected expenses, and to improve debt management, among other things."

Timmermann, says that reverse mortgages "should never be an easy answer for credit card debt." However, she says, if seniors have gone into debt using their credit cards, and if they are paying high interest rates on those credit card balances, then they could consider a home equity loan or reverse mortgage which would allow them to consolidate their unsecured debt and pay it off.

Reverse Mortgage Can Be Part of Older Person's Financial Strategy

"As long as it's part of a real financial strategy, and something they've discussed with a financial planner, a reverse mortgage could be one way of managing debt," Timmermann says. "With the right guidance and policy protection, reverse mortgages can be an important financial option for Baby Boomers who do not have adequate savings or cash flow."

A home equity debt consolidation loan or a reverse mortgage also could be strategies for older people who are facing bankruptcy or who are paying a high rate of interest on their first mortgage, Timmermann says.

To be eligible for a reverse mortgage, borrowers must be at least 62 years old, own a single-family home or other approved property, and live in the house as their primary residence. They also must be current with the taxes on the property and be able to pay insurance and for its upkeep.

Debt Settlement May Be Answer to Seniors With High Credit Card Debt

Christopher Cocozza, a business professor at DeSales University in Center Valley, Pa., says older people's consolidating credit card debt with a home equity or reverse mortgage "would not be the worst thing."

However, his first recommendation is for the older homeowner who has cash flow issues is to try and get a job. "A job is a much better answer to financial woes, especially credit card debt," he says.

Older people who are drowning in debt also might consider debt settlement--where the credit card companies negotiate a lower amount than what is owed as payment. Typically, it is between 40 to 60 percent of the balance owed.

"Credit card companies often are willing to negotiate a settlement because they would rather get something on the dollar than nothing," Cocozza says.

Debt Management May Include More Than One Strategy

The two strategies - debt settlement and reverse mortgage - can be combined. However, Cocozza warns that those over the age of 62 thinking of settling their debt and taking out a reverse mortgage do the former first.

"If you begin the negotiation process before you go and get a reverse mortgage," he says, "the credit card companies might say you have the money and so we're not going to settle. When you have the ability to pay, they take everything. When you don't, that's when they are more willing to agree on a debt settlement plan."

Cocozza also says that the best reverse mortgages are those sponsored by the Federal Housing Administration (FHA) because they have consumer protections built-in such as mandatory consumer credit counseling. "Non-FHA mortgages are not the same product," he says.

About the Author:
Beth W. Orenstein is a freelance writer working in Eastern Pennsylvania. She writes for newspapers, lifestyle magazines and trade journals. She specializes in real estate and medical topics. She graduated magna cum laude from Tufts University in Medford, MA., with a degree in English.