by Joseph Kenny | 11/9/09

Getting out of debt right now is the goal of many consumers as a result of enduring difficult economic conditions. When the financial industry collapsed and people began losing their jobs, the first place they had to turn to in order to survive financially was their savings accounts. Unfortunately there are millions of people living beyond their means or living paycheck to paycheck trying to stay even with the bills.

Now it appears that even some prudent people who did save money are suffering financially because interest rates are so low. Zooming back to the Jimmy Carter era, when interest rates were at 21 percent, people on fixed incomes were benefitting from high interest earnings paid on their prudent savings accounts.

Zooming forward to the present, it is now working exactly the opposite. People who saved all their lives and lived within their means so they could afford to retire comfortably have seen their interest payments reduced to almost nothing. With the US government setting benchmark interest rates at zero to .25 percent, those prudently saved interest bearing accounts are producing very little income.

One of the ways the interest rates are being kept low is through a loose monetary policy. Trillions of US dollars are being injected into the economy to prop up the sagging financial and housing industries. What is interesting about this is the fact it is still difficult to get credit even for those willing to pay higher interest rates. In today’s financial situation there is tight credit, loose government funding programs, and low interest rates. It’s not a competitive market place anyway you look at it.

Many feel that the retired senior citizens are carrying as much of a financial burden as younger unemployed. The difference is, of course, many of the seniors have spent a lifetime working and saving only to find their planned income from retirement accounts cut by 90 percent. Accounts once yielding 4 percent are now earning .3 percent or even lower. The retired senior can’t collect unemployment and have great difficulty finding even part-time employment to supplement their income.

Of course, the low interest rates will not be in place forever. In fact they will probably be raised the first quarter of 2010 and almost definitely increased by June 2010. But that’s sounds like a long way off right now and the increases will happen in steps. In other words, the interest rates will not jump from .03 percent back to 4 percent all at once.

Senior citizens facing personal debt problems due to loss of interest income have several options. First of course is looking for ways to reduce living expenses. Sad as it may be to ask lifetime savers to now reduce their standard of living that may be what is necessary to financially survive. On the other hand, there are lots of government senior citizen programs available that some people may not be aware of such as food, health services, and rent and utilities assistance programs.

Seniors faced with foreclosure should talk with their mortgage company about special financing arrangements being offered to seniors to keep them in their houses. Currently, using reverse mortgages is one tactic though any seniors choosing this option need to thoroughly understand the implications and potential future financial consequences.

Some seniors are cashing in financial instruments they had hoped to roll over for as long as possible including CDs and IRAs. Of course it goes without saying a person would only want to reduce your capital assets by the absolute minimum.

Seniors with debt requiring monthly payments could consider selling one or more assets to pay off the debt. That will permanently reduce monthly expenses.

The message to seniors trying to manage with lower income in today’s economy is to look at their household budget and find ways to lower expenses, and consolidate or eliminate debt, and take advantage of all the senior programs and discounts available. With income dropping, it only makes sense to approach the problem from the expense side. Eventually the government will have to raise interest rates which will restore some of monthly income.