If you’ve stepped in to help your elderly parents manage their finances, you may be surprised to discover that they have more debt than you realized.
Understandably, it can be worrisome when an aging parent has a considerable amount of debt, especially if it may hinder their ability to pay for assistance, qualify for government programs, or support themselves during retirement.
If your parents have debt, here are the steps you need to take:
1. Get Organized
The first step to tackling your parents’ debt is to get organized. Gather all of your parents’ bank statements and financial documents. While reviewing various statements and accounts, search for mortgage payments, credit card payments, loan payments, and any other outstanding balances. You can also order a free credit report to search for additional debts that you may be unaware of or that your parents may have forgotten about.
Create a spreadsheet for all outstanding debt, including mortgage balance, car loans, and all credit card debt. For each account, include the remaining balance, minimum payment, interest rate, and payment due date. This will make it easier to review all of your parents’ debt and prioritize which accounts require immediate attention.
Tip: You’ll also want to review bank and credit card statements to determine if your parents are overspending. If they appear to be overspending, you’ll want to review their spending habits and get them on a budget to eliminate unnecessary purchases and expenses.
2. Create A Plan
Once you’ve identified all of your parents’ debts, work with them to create a plan to pay down or completely pay off their debt. Explore several methods for paying down debt to find one that best fits your parents’ financial situation. You can start by paying off the smallest balance or focus on the debt with the highest interest rate first. As you and your parents begin to make progress, revisit your plan, and adjust your strategy when needed.
Tip: If the interest rates on your parents’ various debts are steep, contact their creditors to see if they would be willing to lower the rate. Some creditors are willing to help if the account holder has always paid on time and has remained in good standing.
3. Prioritize
If your parents’ debt has become too high to manage, you’ll need to prioritize the most important accounts. For example, making the mortgage payment should be a priority over credit card debt. No debts can or should be ignored, but some must be prioritized above others. If you believe your parents’ total debt is so overwhelming that it threatens their assets, such as their home, it might be time to speak with a bankruptcy attorney.
Tip: Keep in mind, if you are your parents’ Power of Attorney, bankruptcy transactions may not be within your authority. If your parents aren’t mentally competent to understand the process of filing for bankruptcy, you’ll need to take the necessary steps to revise the Power of Attorney document before being able to file for bankruptcy.
4. Get Professional Help
Managing your parents’ finances takes a lot of work, and it can become quite overwhelming when your parents have a substantial amount of debt. If you have recently discovered that your parents are in debt, consider working with a CPA to create a reasonable budget and practical plan to tackle their debt.
It’s important to get your parents’ debt under control now to ensure their financial future and to protect their assets. We will work with you to get your parents’ financial health back on track so you can focus on the things that matter most.