Should some people live in Debt ?

[Yoheadden]

This very title goes against my very being, as the DW and I are very debt adverse as we move closer to ER.

The question comes from knowing a very dear couple (she 74, he 84) who found themselves living month to month with a mortgage, CC payment and a consolidated loan from other CCs and expenses.
They each have SS and he has a very small pension. I found out recently that they burned through whatever savings they had by bad financial decisions, bad saving/spending habits, etc, etc. She recently started 2 part time jobs because they need the money.
They are both in okay health for now, but the situation will only get worse once one of them passes.
why is it some people don’t realize how bad their position/decisions are until they are literally out of money?
Whenever they have a unexpected expense, (dental, car problems, etc.) they either need to borrow money or resort back to the CCs.
So in reality, they just don’t have the resources to dig themselves out and any attempt to help financially, would be like throwing money on a dumpster fire.

I know this situation isn’t new and we all know someone like this, but would people in this situation be better off using the system, in a way, by paying the minimum amounts due. This way they can try to maximize available finances to live on ?

 

[REWahoo]

why is it some people don’t realize how bad their position/decisions are until they are literally out of money?

For the same reason some people answer an email from a Nigerian prince and send money to help. Must be in their DNA.

 

[SecondCor521]

I know this situation isn’t new and we all know someone like this, but would people in this situation be better off using the system, in a way, by paying the minimum amounts due. This way they can try to maximize available finances to live on ?

Paying minimums on debts maximizes cash flow in the very near term but minimizes wealth building in the long term.

So the answer to your question depends on a person's (or couple's) goal - are they trying to maximize their near term cash flow, or their long term wealth?

It's also sort of the same answer to your other question - many people focus more on immediate gratification and don't look at a larger picture.

(Yes, I know several people like you describe, some in my own family. I've also thrown money on those dumpster fires and learned my lesson.)

 

[Souschef]

I agree. I have a cousin who must have been put on earth to be a bad example.
She has blown through 2 inheritances and the proceeds from her mother's house.
She is a nice person, but has no money smarts. I think they will end up in Section 8 housing.

 

[ERD50]

Credit card debt is forgiven at death, right? I guess I can see why someone in a bad position might just say, the heck with it, and let the debt roll up for the rest of their days?

-ERD50

 

[old medic]

Paying minimums on debts maximizes cash flow in the very near term but minimizes wealth building in the long term.
So the answer to your question depends on a person's (or couple's) goal

We have been playing the 0% CC game for several years in rebuilding our mortgage free house. And with the skyrocketing cost, we jumped on several large purchases to try and save some money... Both our cabinetry and siding has DOUBLED in cost since we have bought them.
We could have pulled money from Saving, Roth , a loan from the DW 401K, or pull from my 401K.
Savings.... would rather it stay there...
Roth.. Hell its gone down enough on its own.
DW 401K, Shes adding 30% which helps with Tax/ACA. A loan would cut that, and be at 8.5%.
Pulling from my 401K would be even more costly to cover taxes and ACA increase.

So It seems that being in debt mostly at 0% is the best financially for us.

 

[Dash man]

Credit card debt is forgiven at death, right? I guess I can see why someone in a bad position might just say, the heck with it, and let the debt roll up for the rest of their days?



-ERD50

IF there is money in the estate, they will go after it. If not, they may try to convince family to pay for it, but there is no legal obligation.

 

[38Chevy454]

Bad financial habits continue through life.

 

[daylatedollarshort]

I don't have any advice on the debt part, but I would recommend they contact their nearest senior center or local government department for aging and find out what services they might quality for from Medicaid to subsidized housing to food programs. Many of the housing programs have waiting lists years long, so if they are broke it would be good to apply now before one of them passes. If they own their own home maybe they could take in a renter. Some of our local senior agencies have senior roommate matching services.

It probably depends on the area, but our area has a lot of services for low income seniors including free lunches, door to door transportation, legal aid, Medicare counseling, budget help, discount passes for public transportation and help with Internet, cell phones and utilities.

 

[SecondCor521]

So It seems that being in debt mostly at 0% is the best financially for us.

I thought it was clear by context that my comments were related to interest bearing debt as the OP's example seemed to fairly strongly imply.

 

[steelyman]

IF there is money in the estate, they will go after it. If not, they may try to convince family to pay for it, but there is no legal obligation.

I paid off a deceased relative’s credit card debt for a greatly-reduced amount by agreement. I suppose it wasn’t required but it didn’t seem right to exit as a “deadbeat”. (no pun intended)

 

[Dash man]

I paid off a deceased relative’s credit card debt for a greatly-reduced amount by agreement. I suppose it wasn’t required but it didn’t seem right to exit as a “deadbeat”. (no pun intended)

I would do the same.

 

[pacergal]

I don't have any advice on the debt part, but I would recommend they contact their nearest senior center or local government department for aging and find out what services they might quality for from Medicaid to subsidized housing to food programs. Many of the housing programs have waiting lists years long, so if they are broke it would be good to apply now before one of them passes. If they own their own home maybe they could take in a renter. Some of our local senior agencies have senior roommate matching services.

It probably depends on the area, but our area has a lot of services for low income seniors including free lunches, door to door transportation, legal aid, Medicare counseling, budget help, discount passes for public transportation and help with Internet, cell phones and utilities.

+1
OP if you have a good relationship with this couple(which you seem too by knowing these details), and they are open for advice, this is what I would help them with.

 

[Pellice]

I don't understand it either. Was the couple once wealthy and then could not adjust to new limits? My co-worker who used to complain endlessly about her "crap*y salary" (she made more than I did), used the expression, "I have to live." "Living" for her had a different meaning.

Another thing I don't understand is how such people DO manage? I read so much about people who have NO resources, but they are under a roof, eating, buying, etc. Yes, I know they max out credit cards, but how can that go on longer than a year or so? I suppose I simply look away and can not contemplate the wider range of tactics - barter, food pantries, borrowing items. I suppose I would learn, should I find myself in such a situation.

The thought of having no savings always filled me with fear.

 

[daylatedollarshort]

I see a lot of similar posts on Reddit from adult kids who have parents in the same situation. The common theme, beside the obvious lack of retirement planning, is using debt to continue to finance their working year's lifestyle. And then not downgrading their standard of living until the situation becomes obviously desperate, like one of them passes or the house goes into foreclosure. There really are many programs out there for seniors and low income households, but they can only get the benefits if they know about the programs and apply. Social Security, government programs, Medicare / Medicaid, Golden Girl style roommates and public transportation with senior passes, senior center activities, and free lunches would still allow for a fairly normal lifestyle in major cites in our state even for broke seniors.

 

[Teacher Terry]

Depending on where they live they could sell their house and either rent or buy a small condo. That might help with their cash flow. Depends on the location there might not be many resources available. For instance the difference between California and Nevada is like day and night. It’s why our taxes are so low.

 

[Yoheadden]

For the same reason some people answer an email from a Nigerian prince and send money to help. Must be in their DNA.

Oh, so you know my sister. In her case it was the embassy.

 

[Bamaman]

Credit card debt is forgiven at death, right? I guess I can see why someone in a bad position might just say, the heck with it, and let the debt roll up for the rest of their days?

Credit Card companies don't necessarily forgive their balances at someone's death. If the balances are large, they can make a claim against the estate as an unsecured creditor. It's the same way with unpaid hospital bills.

Even though some deceased individuals may have substantial personal debts, they may have equity in other assets (like a house) that can be attached.

That's when being an executor gets unpleasant--having to deal with estate debts.

 

[Yoheadden]

Paying minimums on debts maximizes cash flow in the very near term but minimizes wealth building in the long term.

So the answer to your question depends on a person's (or couple's) goal - are they trying to maximize their near term cash flow, or their long term wealth?

Unfortunately, I don’t honk there is a chance for long term wealth.

It's also sort of the same answer to your other question - many people focus more on immediate gratification and don't look at a larger picture.

Very true. One of the contributing factors was an addiction to QVC after they moved into their house from an apartment.

 

[Car-Guy]

Bad financial habits continue through life.

I'm sure you are talking about overspending, running up debt, etc... However I've seen the other side first hand. My dad was the poster child for the ultimate saver all his life. When he died I'm "guessing" his annual spend was 25 to 30k a year. (give or take a few k) He and mom did "nothing" the last ~20 years of their lives, even though they could have. No Internet, no cell phone, no travel, house was in disrepair, one older/cheaper car, etc.

Oh, and they died millionaires and zero debt. So not spending (or not enjoying life a little) can be a bad financial habit too.

 

[Car-Guy]

Credit Card companies don't necessarily forgive their balances at someone's death. If the balances are large, they can make a claim against the estate as an unsecured creditor. It's the same way with unpaid hospital bills.

Even though some deceased individuals may have substantial personal debts, they may have equity in other assets (like a house) that can be attached.

That's when being an executor gets unpleasant--having to deal with estate debts.

I think he was trying to make a joke... Few creditors will forgive anything "just" because you died.

As executor for my parents estate, I paid off their final few (and small) bills (utilities/services). I remember dad had a small monthly pension too. When I notified them of his death, they clawed back the last monthly payment they had made to him.

 

[CaptTom]

I think there's something to the argument for gaming the system, if you've got nothing to lose. Rack up the debt then declare bankruptcy, or die.


Not my personal plan, but I can see that as being a rational decision for some people who have run out of options.

 

[Walt34]

Paying minimums on debts maximizes cash flow in the very near term but minimizes wealth building in the long term.

Lots of otherwise apparently intelligent people do that. My ex was one of them. She wasn't stupid - she went to college on a full ride scholarship - but as my younger sister put it after the divorce "Opposites attract but they can't live with each other". But she was spontaneous and impulsive too, and that doesn't go well with sound long term financial behavior. And when she wanted to take out loans for stuff that I considered luxuries, and the house was coming up on obviously needed and expensive maintenance, I just didn't see a future going down that road. At least not a future I wanted to live in.

 

[SnowballCamper]

but as my younger sister put it after the divorce "Opposites attract but they can't live with each other".

Thats pretty insightful...Thanks!

 

[ERD50]

Credit Card companies don't necessarily forgive their balances at someone's death. If the balances are large, they can make a claim against the estate as an unsecured creditor. It's the same way with unpaid hospital bills.

Even though some deceased individuals may have substantial personal debts, they may have equity in other assets (like a house) that can be attached.

That's when being an executor gets unpleasant--having to deal with estate debts.

Sure, but if the other estate assets are minimal, why not (ethics aside)?

In the case described, it doesn't sound like heirs would be getting anything anyway.

-ERD50