Yahoo Finance 10 Ways the Middle Class Can Help Retired Parents Pay Off Debt — Without Risking Their Own Futures
Debt is never a pleasant topic to discuss around family. It can be even more fraught when there is a generational divide involving parents asking their children for assistance with getting out of a financial hole. The stakes only go up if the family is middle class and the parents are in retirement. Does this sound like a situation familiar to you and your kin?
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Ethan Keller, the president of Dominion, said that “[a]pproximately 78% of Americans are worried about affording a comfortable retirement. This statistic highlights the widespread anxiety about financial security in later years. In middle-class families, helping parents pay off debt without incurring additional debt is essential.”
The good news is that there are ways to overcome and eliminate debt for retired parents without going into it yourself. Your first impulse might be to send your parents money or take out a loan to help cover costs, but that might not be the best move financially for you if you are middle class. Instead, check out these tips from money management experts who can chart the course of money security across the generational gap.
Here are 10 ways the middle class can help retired parents pay off debt without going into it themselves.
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Create a Comprehensive Financial Plan
“Work with your parents to create a detailed financial plan that outlines their income, expenses, debts, and financial goals,” recommended Emma Davidson of eMerchant Authority. “This will help identify areas where they can cut back and prioritize their spending.”
“Before taking any action, it’s crucial to have a comprehensive understanding of your parents’ financial situation,” advised Ryan Jacobs, the founder and managing partner of Jacobs Investment Management. “Sit down with them and review their debts, assets, income, and expenses. This assessment provides a clear picture of what needs to be addressed.
“By creating a detailed financial overview, you can prioritize which debts to tackle first, such as high-interest credit cards or medical bills,” Jacobs continued. “Understanding their financial landscape helps in creating a realistic debt repayment plan.”
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Consolidate Debt
Debt consolidation can simplify multiple debt payments into a single, more manageable payment, often with a lower interest rate.
This approach can reduce the financial burden on your parents and help them pay off debt faster, according to Jacobs.
“Help your parents consolidate their debt into a single, lower-interest loan or credit card. This can simplify their payments and reduce the amount of interest they pay over time,” Davidson said.
Negotiate With Creditors
“Work with your parents to negotiate with their creditors to reduce their interest rates, waive fees, or settle their debts for less than the original amount,” Davidson suggested.
Jacobs advised that “reaching out to creditors to negotiate better terms can lead to lower monthly payments or reduced interest rates. This can make a substantial difference in managing debt effectively.
Increase Income
“Encourage your parents to explore ways to increase their income, such as taking on a part-time job, selling items they no longer need, or pursuing a hobby that can generate additional income,” Davidson said.
“If your parents are physically able and interested, part-time work or monetizing a hobby can provide additional income to help pay off debts,” Jacobs said. “This can be a fulfilling way to stay active and financially productive.”
Cut Expenses
“Help your parents identify areas where they can cut back on expenses, such as reducing their grocery bill, canceling subscription services they don’t use, or finding ways to save on household expenses,” Davidson said.
“Encourage your parents to consider downsizing their living situation, such as moving to a smaller home or apartment,” Keller said. “It can significantly reduce their monthly expenses and free up funds to allocate towards debt repayment. Also, assist them in identifying and liquidating any assets, such as investments or collectibles, that can be used to pay off outstanding debts.”
Use the 50/30/20 Rule
“Allocate 50% of your parents’ income towards necessary expenses like rent/mortgage, utilities, and food,” Davidson explained. “Use 30% for discretionary spending like entertainment and hobbies. And, put 20% towards saving and debt repayment.”
Consider a Reverse Mortgage
“If your parents are struggling to make ends meet, a reverse mortgage may be an option,” Davidson said. “This type of loan allows them to tap into the equity in their home and receive a steady stream of income.”
“For homeowners over the age of 62, a reverse mortgage allows them to convert part of their home equity into cash, which can be used to pay off debts,” Jacobs said. “This option can provide immediate relief without requiring monthly mortgage payments.”
Prioritize Needs Over Wants
“Help your parents prioritize their needs over their wants,” Davidson said. “This means focusing on essential expenses like rent/mortgage, utilities, and food, and cutting back on discretionary spending.”
“If your parents have savings, it may be wise to use a portion of it to pay off high-interest debts,” Jacobs noted. “This strategy should be approached carefully to ensure they still have enough savings for emergencies and essential expenses.”
Encourage a Support System
“Encourage your parents to build a support system of friends, family, or a support group to help them stay motivated and accountable in their debt repayment journey,” Davidson said.
“Consider providing hands-on caregiving support for your parents, such as assistance with household chores, meal preparation, or transportation,” Keller added.
“This can help them save on in-home care or other services, allowing them to redirect those funds toward debt payments. Throughout the debt reduction process, it also offers emotional support and guidance,” Keller remarked.
Seek Professional Help
“If your parents are overwhelmed by debt, consider seeking the help of a credit counselor or financial advisor,” Davidson said. “These professionals can provide personalized guidance and help your parents develop a plan to get back on track.”
“A financial advisor can offer invaluable insights and strategies that are customized to your parents’ needs. Their expertise can help avoid common pitfalls and ensure that the debt repayment plan is effective and realistic,” Jacobs agreed.
Investigate government programs and community organizations that offer debt counseling, debt management plans or other forms of financial assistance for retirees, Keller said.
“These resources can provide valuable guidance and negotiate with creditors on your parents’ behalf,” Keller added. “Local Area Agencies on Aging and the National Foundation for Credit Counseling are two examples of these programs.”
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This article originally appeared on GOBankingRates.com: 10 Ways the Middle Class Can Help Retired Parents Pay Off Debt — Without Risking Their Own Futures
