October 28th, 2009
Increasing numbers of senior citizens are drowning in debt for a variety of reasons. Some have taken huge hits to retirement accounts, some have high medical bills, and others are just poor managers of their money. Here are some things older adults should consider if planning to use a reverse mortgage to pay off debt.
Reverse Mortgages Need to Be Budgeted
You can choose a tenure option, which provides monthly payments for the rest of your life, or you can get higher monthly payments for a specified term, a lump sum, or a line of credit to draw on. But regardless of the way you choose to receive your proceeds, you still need to find the best way to use the money. Draw up a budget and stick to it. To keep medical expenses from throwing a monkey wrench into your plans, consider supplemental insurance or catastrophic coverage.
Pay off Debt and Stay Out of Debt
Public-policy group Demos found in a study that low- and middle-income Americans 65 and older who carried credit card balances for more than three months had average credit card debt of $10,235, according to the Washington Post. This average is 26% higher than in 2005.
If you do use the proceeds from a reverse home loan to pay off credit cards and other debt, stop using those cards and pay cash for purchases. There is no point to getting a reverse mortgage to pay off your cards if you just go out and run up new debt. Speak with a reverse mortgage counselor and get several reverse mortgage quotes to decide if a reverse mortgage can help with your debt reduction plan.