I’m on Social Security. Should I Settle My Debts?


Dear Steve,

I’m retired, receiving social security and small pension, $21,404 annually.

I bought a mobile home a couple of years ago, good price, as-is. Turned out to be more than I bargained for.

I currently owe about $13,000 between credit cards and one personal loan (about $10,000).

I’m making payments but have missed a few which affects my credit, of course. Each time I think I’m on the road to recovery, something happens and it seems I’m even deeper.

I get my credit going up (made into fair at one point) and all it takes is something out of the ordinary and it goes back down.

I have more things to do on my mobile home and I will eventually need to replace my vehicle (2000 Chrysler, Grand Voyager, 115,000+ miles, inherited from my mother) and I will need credit to do either.

At 70 years old, I’ve learned how to replace sub-flooring, have rejuvenated used furniture, and am learning a lot about DIY.

With Covid, the price of groceries has gone up and I can’t seem to get ahead.

Do I settle (which I don’t want to do…I owe the money)? Do I apply for a consolidation loan (another credit check will drive my credit even lower and little I can do if another emergency comes up)?

Can you, give me some direction? I would like to get rid of the personal loan – One Main interest is killing me!



Dear Laura,

I’m very impressed with your ability to learn new skills and tackle projects. Kudos.

You said something that really jumped out at me. You said, “Each time I think I’m on the road to recovery, something happens and it seems I’m even deeper.”

This is something I’ve heard time and again over the decades. Just when you think you are making progress, something happens and the debt runs up again.

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One of the reasons this happens is that there is no emergency fund or savings account to fall back on when a new expense appears. So it all lands back on credit and the debt cycle revs up again.

Trying to dig out of debt needs to be a combination of both saving and paying down debt to avoid this issue. But I get it. It’s natural to want to toss every dollar at a debt to pay it off.

And you’ve already said you are stuck in that circle when you said, “another credit check will drive my credit even lower and little I can do if another emergency comes up.”

Short-term Issues

The issue right now is your income is limited and the credit cards and loans are more than you can pay given the increased cost of living.

Even trying to save enough money in a savings account seems unreasonable at this point.

Medium-Term Issues

You will need to replace your vehicle at some point. However, it is very unclear how you would be able to afford any car payment on a new or slightly used vehicle. It is far less expensive at this point to lovingly care for your current vehicle than it is to replace it. Paying for regular oil changes and tire rotations is much cheaper than a car payment.

Long-Term Issues

The days are slowly creeping towards you when you will not be able to be so crafty and handy to do your own DIY projects. As you get older you will be more dependent on Social Security for food, shelter, and heat. You will need to spend more money each month just staying safe.

So What Do We Tackle First?

I realize the pressure is on you to act quickly on the immediate things that are stressing you out. That’s normal to feel that way.

However, I think your issues are actually just a bit further down the road. Let’s say we used the extra money to settle the debt. That still does not get you to save money and build up an emergency fund.

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To settle you will have to default on the debt and that will lead to collection calls and potentially getting sued. That will hurt your credit.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

A consolidation loan leaves you still having payment and limits or restricts your ability to save and/or live within your income.

My Suggestion to Consider

I know the level of debt you have is not as high as most people but I do think the speed at which you can terminate the debts and start saving some money for emergencies, is critical.

You can stop payments by just defaulting and playing defense when the creditors come calling or you can take action.

The defensive posture would be to think about using a company like the non-profit law firm HELPS that can help you manage to deal with the collectors since your income is Social Security. This is a reactionary approach.

A take action approach would be to consider filing for bankruptcy, closing the door on all collections activity, have the debt forgiven in about 90 days, and have no tax liability for the forgiveness.

In this case, I would suggest you find a good local bankruptcy attorney and have a free discussion about what bankruptcy would mean for you. Bankruptcy is the fastest way to get a fresh start for the least amount of money.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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