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Mounting credit card debt can have a devastating impact on the millions of Americans living on Social Security. When your monthly income is fixed and often modest, it can be tough to find room in the budget for even the minimum credit card payments, and things can get even more challenging as the interest charges pile up. And, if you fall too far behind on your credit card payments, the debt collection calls and mounting balances that follow can make what was once a challenging financial situation feel hopeless.
When credit card debt becomes impossible to pay off, credit card debt forgiveness, which involves negotiating with your creditors or debt collectors to pay a lump sum in return for a reduced balance, often becomes part of the conversation. But if your primary or only source of income is Social Security, you might wonder if you can even qualify. Social Security recipients face a maze of federal regulations and income restrictions, after all, so what works for other borrowers may not apply to those living on fixed retirement benefits.
So, can you pursue debt forgiveness while receiving Social Security benefits or would another debt relief strategy be a better fit? That’s what we’ll examine below.
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Can you qualify for credit card debt forgiveness while on Social Security?
The short answer is yes — your Social Security income doesn’t automatically disqualify you from trying to have a portion of your credit card debt forgiven. However, pursuing debt forgiveness while on Social Security comes with unique advantages and limitations.
For example, debt forgiveness programs typically require you to demonstrate financial hardship, and living solely or primarily on Social Security often meets this criterion automatically. So, the fact that your income is fixed and you have limited ability to increase earnings can actually make it easier to qualify. That said, a few other factors matter too, including:
- The amount of unsecured debt you owe
- Your ability to save for settlement offers
- Whether you have other sources of income, like pensions, annuities or part-time work
- Whether you have assets that could be used to fund a lump-sum payment
If you can set aside funds over time for a lump-sum settlement, you may qualify for this type of debt relief. However, if Social Security is your sole source of income and there’s little to no room in your budget, saving for settlements can be very challenging since the average settlement requires paying 50% to 70% of the original debt. If your Social Security income barely covers your living expenses, this can be an issue.
And, your Social Security benefits are also protected from most creditors under federal law. Credit card companies and debt collectors generally can’t garnish your Social Security payments to recoup what’s owed. Because of this, some people on fixed incomes choose not to pursue debt forgiveness.
However, this doesn’t mean creditors won’t try other methods to collect what’s owed. For example, if you have other assets, they may still be vulnerable to collection efforts. And, if you mix your Social Security funds with other money in your bank account, things can become complicated.
It’s also worth noting that your fixed income and limited ability to increase earnings can strengthen your negotiating position. Because your Social Security benefits are protected, if a credit card company sues you and wins, they still typically cannot garnish your payments. This gives you significant leverage in settlement negotiations, which may make debt forgiveness worth pursuing.
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How to decide if debt forgiveness while on Social Security is right for you
If you’re trying to decide whether to pursue debt forgiveness while receiving Social Security benefits, it may help to weigh the following:
- Consider your monthly cash flow. Debt settlement only works if you can save enough for creditors to accept a lump sum, so be sure to assess whether you’re realistically able to reach that goal. If you’re living solely on Social Security and already struggling to cover basic expenses, this strategy may not be realistic.
- Think about your stress levels and quality of life. While Social Security benefits are protected from garnishment, debt collection calls and credit damage can still cause unwanted stress, so ask yourself whether the tradeoffs would be worth it to take back control of the situation.
- Compare the debt relief alternatives. Debt forgiveness is just one of many options you have for pursuing debt relief. For some seniors, other paths like debt management, credit counseling or debt consolidation, may make more sense.
The bottom line
Credit card debt forgiveness is possible even if you rely on Social Security, but it’s not a solution that works in every case. Social Security benefits have unique legal protections, which means that seniors may have more options than they realize. So, before pursuing any type of debt relief, it may benefit you to talk to a credit counselor or debt relief expert to make sure you understand which path would truly be the best fit for your situation.
