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Credit card interest rates remain high right now, driven up, in part, by the Federal Reserve's rate hikes that occurred in 2022 and 2023. While the increases were aimed at combating inflation, they also raised the prime rate and, by extension, caused an uptick in the variable rates on credit cards. have also prompted card issuers to continue charging to manage the higher risk of missed payments.
The latest Federal Reserve data shows the average annual credit card rate is 21.91%, with many credit cards charging rates near 30%. Making matters worse, many Americans are turning to their credit cards to help them survive financially amid higher prices as the inflation rate slowly trends downward. The problem can be particularly challenging for seniors and older adults, many of whom live on a limited income. These cardholders might consider debt relief options like debt repayment strategies, or . But one approach to explore, in particular, is , which lets you settle your balance for less than you owe with a lump-sum payment.
Like most financial tactics, this debt relief option works well in some situations but not in others. Here's when might make sense for seniors, and when it might not, according to experts.
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Credit card debt forgiveness isn't right for everyone, but in certain situations, it may offer seniors a practical way to reduce financial strain.
"Debt forgiveness may be a smart option for seniors with high medical expenses, low or limited income or no significant assets," says Leslie Tayne, a financial attorney and author of "Life and Debt."
It may also be worth exploring if you'd sacrifice essential needs like housing, food and medical care to continue paying your credit card debt.
"If seniors live on Social Security alone and repaying debt would mean sacrificing their basic needs or quality of life and have no need for credit, debt forgiveness programs may be worth looking into to help provide financial relief with little to no consequences to credit or assets," Tayne said.
Tayne added that seniors managing serious illnesses or with high interest rates and fees might also benefit from debt forgiveness.
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While credit card debt forgiveness may be for some, the risk is too high for others. This is especially true for seniors with assets or who want to use credit in the future.
"If the senior has substantial assets like home equity or retirement savings or plans to apply for new credit like a car lease or moving to a new rental, forgiveness could do more harm than good," says Daniel Milks, founder of Fiduciary Organization and Woodmark Advisors. "In these cases, the long-term impact may outweigh the short-term relief. He adds that forgiveness can "damage credit scores, trigger tax consequences and potentially complicate estate planning."
Even without immediate financial goals, seniors should still exercise caution with credit card debt forgiveness.
"I worry about seniors being lulled into this as an appealing solution in part because it is referred to as 'forgiveness,'" said Bobbi Rebell, a certified financial planner and personal finance expert. "There is a price to be paid for the forgiveness that needs to be clear. It can hurt their credit score, and it can also potentially have tax consequences."
Rebell also warned of another serious risk.
"The biggest concern however is that there are a lot of predatory actors out there that will take advantage of seniors," Rebell says.
If you're considering working with a company, look for signs the .
If you're not ready to pursue debt forgiveness, there are still ways to combat your credit card debt on your own. Here are five DIY strategies that may help:
Milks recommends pairing two of these strategies.
"Use one card with the lowest balance for the snowball method. Pay it off first to gain momentum while making minimums on the rest," he said. "Pair that with calling credit card companies directly to ask for hardship interest rates or payment plan options—surprisingly effective if you're upfront," Milks says.
If you're a senior struggling to keep up with large credit card balances, credit card forgiveness can be an option in certain situations, depending on your financial circumstances. And while paying off debt quickly and for less sounds great, it may not be a good move if it creates bigger problems down the road. Before choosing a debt relief option like credit card forgiveness, take time to weigh its of this strategy.
