What to Do When Your Parent Is in Debt

Hill Street Studios

Until our weeklong visit, my mother and I had no idea that things had gotten so bad for her mother-in-law.

Nothing could have prepared us for the telephone calls that began each day at 6 a.m. and sometimes continued late into the evening. My grandmother refused to pick up the phone. And when my mother or I answered, we found tenacious collections agents on the other end who were all too happy to berate us instead. We had no idea how long my grandmother had been living with the calls or how much debt had caused them to start.

Debt among the elderly is not an uncommon problem. According to the 2004 Survey of Consumer Finances, issued triennially by the Federal Reserve Board, Americans ages 65 to 74 incurred as much as 75 percent of their annual income on debt payments. About a third still carried a mortgage for their primary residence but the rest were paying off loans and credit card debt.

That’s cause for concern, not only for the indebted, but for their children, many facing retirement themselves. Linda Sherry, director of national priorities at Consumer Action, a nonprofit consumer advocacy group, points out that one of the most common questions asked by grown children is whether they have any responsibility for their parents’ debt.

“If you are not a joint cardholder, you are not legally responsible,” Sherry says.  “But,” she adds, “morally, you may feel that you are and want to help your parent pay off those debts.”

Sandra Timmermann, director of the MetLife Mature Market Institute, a research and education center on issues related to aging, says baby boomers should consider other solutions before dipping into money that should be earmarked for their own retirement. Otherwise, she says, “they may find themselves in the same situation 10 or 20 years down the road.”

So how should you help parents who may be struggling with debt?

Stop the harassment. Sherry says that one of the first things children can do is to stop the harassing phone calls. “Under the Fair Debt Collection Practices Act, the provisions say that all you have to do is tell collectors to stop calling.” But in order to ensure compliance, she suggests helping your parent send a registered letter to the collectors. Once the letter is received, the collector may not contact your parents again, except to say there will be no more contact or to say the creditor intends to take a specific action. But be clear about this: Sending the letter does not erase the debt. And your parent could still be sued.

Assess the damage. Unfortunately, older parents, who fear the possibility of losing their independence, may resist discussing the problem, especially with their own children. “If your parent is not forthcoming and you don’t have a power of attorney that allows you to look into the issue yourself, there is very little you can do,” says Craig Reaves, president-elect of the National Academy of Elder Law Attorneys. One solution may be to bring in a neutral third party, such as a financial adviser or a family attorney, to alleviate the embarrassment and help sort through the problem.

Determine the cause. Is your parent in debt because he or she can’t afford the necessities on a fixed income—or is it from trying to live too well? Sadly, my grandmother fell into the latter category, because she didn’t understand the fundamentals of revolving debt. Recognizing the behaviors behind your parent’s debt is critical, both for solving the current problem and for making certain that it doesn’t happen again. 

Look for other sources of income. Before reaching into your own pocket, make sure that your parent is receiving all the benefits to which he or she is entitled. The Benefits Checkup website may provide information on local programs that could help ease your parent’s monthly bills.

Read the fine print. If the situation is so bad that your parent is considering a reverse mortgage or bankruptcy, discuss the long-term implications. “You have to evaluate these things carefully,” says Timmermann. “They are something to look into, but you have to understand what they are really offering.”

In my family’s case, my mother was unsure of how best to help, especially because her mother-in-law was unwilling to share her financial troubles. Also, we both live quite some distance away. Luckily, a relative who lived nearby stepped in. He helped her organize her bills, cancel her credit cards and set up a payment plan. Now that we understand the problem, we hope and expect that there will be no more surprises in the future.

How to help pay down the debt

• In the case of credit card debt, recommend that your parent call the issuer and ask for a so-called “work-out plan.”  “When the company is willing, a work-out plan can reduce the debt and the interest owed,” says Sherry. Companies are not always willing to implement such plans, but it is definitely worth a try.
• You can also steer your parent to a credit counseling agency. The  National Foundation for Consumer Credit can help locate a reputable one in your area.
• If you do want to provide financial assistance to your parent, be sure to put money in your parent’s bank account rather than paying the bills directly out of your own account. “By directly paying your parent’s debt, you may be inadvertently putting yourself in a position where you are guaranteeing it,” says Reaves, the elder law attorney. He says that in some states, creditors have been able to shift legal responsibility by arguing that they have been relying on payments from the child.