The process of getting older is never really easy for anyone, and included among the many responsibilities associated with advancing adulthood is the need to keep an eye out on the welfare of our aging parents.
Fact is, parents never really like to fully let go of their authority and independence, but as older age and decline set in, delicate situations can and do arise surrounding the ability of elderly parents to manage their own financial affairs. Indeed, the day often arrives when parents simply are no longer able to handle their own financial responsibilities, with pride often getting in the way of asking for help – even when they need it.
Therefore, it becomes our responsibility as their adult children to be proactively prepared to gently offer help. As our parents age, it’s important to look early on for financial troubles that they may have. Here are 5 steps to help your aging parents with their debt.
5 Steps to Help Your Aging Parents With Debt
If you have elderly parents in debt, the first step is to begin talking with them about it and to gently initiate a dialogue regarding any financial issues that they may be having. Create an open line of communication that shows you are concerned about their well-being. It is never too soon to begin this dialogue – as the best time to start talking really is before any real problems arise.
Remember that many people become defensive when discussing finances, and our parents are no exception. Therefore, make it clear that you are approaching them out of your concern for them – and mention (if necessary) that the discussion isn’t about any matters related to inheritance.
If getting started proves difficult, be alert for solutions to get the conversation going. Maybe you’ve noticed unopened mail related to credit card bills or other bills; maybe you’ve heard one parent complain about the spending habits of the other parent – you’re hearing complaints about credit card usage, credit card bills, or just bills – in general.
These represent examples of opportunities to initiate a dialogue with your parents about their finances and any debt that they may have.
Once you have a dialogue going, the next step is to try to lead by example. For example, if you or someone you know has already climbed out of debt, share the story in a constructive manner. Listen to your parents’ needs and inspire them to tackle their own debt so that they can achieve the peace of mind that comes with knowing that their necessities related to housing, health care, food and transportation will always be met.
If it becomes the least bit clear to you that trouble may be lying ahead, gently ask how you can help with meeting any of their financial needs. Get your siblings involved as well. Building awareness of any financial issues related to your aging parents creates transparency within your family and builds a stronger support system for all involved.
Recognize as well that there are many ways you can offer to help in non-financial ways – offer to help balance a checkbook, to review mail with your parents, to schedule appointments for home repairs, and caution your aging parents about telemarketing and direct mail scams that target the elderly.
You can offer to help with preparing documents during tax season, and encourage your parents to set up automated bill payments when possible. You can also ask for online account access so that you can monitor credit card accounts with your parents and set up a regular “check-in routine” ahead of scheduled monthly payments to make certain that all bills are paid on time and that no excess spending is occurring.
Elderly Parents in Debt
A fourth step to help your aging parents in debt is to get working together with them on constructing a sound and sensible written monthly budget. A budget is important because it helps ensure that any potential excess spending is curtailed and that any existing debt gets paid down in a steady manner while still living within one’s means.
Post-retirement budgets are a little different than those for younger people because it is more likely that incomes have contracted while health care expenses have risen. Carefully itemize all necessary monthly expenses including any monthly debt payments against all forms of monthly cash inflow, including income producing investments, mandatory retirement distributions, social security, and any income from employment.
The 50/30/20 budget can be used as a framework in which 50% of all after-tax income gets allocated toward necessities (housing, food, medical expenses, utilities, transportation), 30% is allocated to “wants” (restaurant meals, travel, entertainment) and 20% is allocated toward debt repayment and savings.
It is important that a minimum of 20% be allocated toward the final grouping that includes debt repayment, and therefore, if more than 50% of cash flow needs to be put toward necessities, the ensuing shortfall must diminish the “wants” category. Here’s where things can get a little tricky for elderly parents in debt.
If elderly parents in debt have high debt levels and their necessary expenses run above 50% of after-tax income, it becomes very difficult for them to enjoy their golden years fully. The burden of excessive debt will limit the ability of aging parents in debt to spend disposable funds on “wants” and it becomes a case of either doing without, possibly working more, or relying on credit cards for extra spending – only deepening the cycle of debt.
Therefore, the fifth and final step is to educate your parents about the avalanche method and the snowball method. Both require taking full inventory of all debts and organizing them by balance owed, interest rate, and minimum monthly payment. In the avalanche method, priority is assigned to the highest interest rate debt while keeping current with all other minimum monthly payments.
When the highest interest rate debt has been paid in full, move over to the debt with the second-highest interest rate, and so forth. Through this process, the avalanche method saves the most in interest expense over the life of all debts. However, if your parents want to enjoy smaller victories sooner, the snowball method prioritizes debt balances by size and pays off the smallest balance first, continuing onward to the second smallest, and so forth. Either repayment method moves your elderly parents in debt closer to the freedom and peace of mind that comes with living a debt-free lifestyle.
However, if debt levels are too high such that either of these debt repayment methods isn’t feasible given the advanced age and lifestyle desires of your parents, it could be time to bring in outside help. There are a number of debt relief options available that include debt settlement, debt consolidation or a debt management plan.
If the 50/30/20 budget framework reveals that the avalanche method and/or the snowball method simply won’t work in the case of your elderly parents in debt, contact us here at United Settlement. Our experienced debt relief professionals can assist you and your parents in transitioning effectively toward a debt-free lifestyle.
About the Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.