How Reverse Mortgages Can Help Pay Off Debt

26 August 2025

Let’s face it—debt can feel like a ton of bricks pressing down on your shoulders. Whether it’s credit cards, medical bills, or helping the kids with student loans, it adds up fast. And if you’re a homeowner in or near retirement, trying to juggle fixed income with growing expenses, things can get downright overwhelming.

But don’t panic just yet.

There’s a financial tool specifically made for folks aged 62 and older that could lighten your load significantly: a reverse mortgage. Today, we’re going to dive deep into how reverse mortgages can help pay off debt, and why they might just be the lifeline you’ve been searching for.

What Exactly Is a Reverse Mortgage?

Before we go any further, let’s break down what a reverse mortgage even is. In simple terms, it’s a loan that allows homeowners aged 62 and up to convert part of the equity in their home into cash—without having to sell the house or make monthly mortgage payments.

Sounds too good to be true? Think of it this way: it’s the bank paying you instead of you paying the bank, using your home’s value.

You remain the owner of your home, and you can receive the money in a few different ways—monthly payments, a lump sum, a line of credit, or a combo of all three. And the best part? You don’t have to repay the loan until you sell the home, move out permanently, or pass away.

Why Would Someone Use a Reverse Mortgage?

Great question.

People often turn to reverse mortgages for several reasons:

- To supplement Social Security or retirement income
- To cover medical bills or long-term care
- To make home improvements
- Or, you guessed it—to pay off debt

Debt can eat away at your monthly income and peace of mind. A reverse mortgage can help you take a deep breath and regain control of your finances.

Paying Off Debt with a Reverse Mortgage – How It Works

Alright, let’s get into the nitty-gritty. Suppose you’ve still got a traditional mortgage on your home, or maybe you’ve racked up credit card debt or personal loans. The reverse mortgage can do the heavy lifting here.

Step 1: Pay Off Your Existing Mortgage

The first thing a reverse mortgage does is pay off your existing mortgage. In fact, it's a requirement. So, if you're still making monthly mortgage payments, those disappear.

Imagine removing that monthly payment from your budget. That’s money back in your pocket every single month.

Step 2: Use the Remaining Cash to Tackle Other Debt

Once your existing mortgage is paid off, the leftover funds from the reverse mortgage are yours to use however you please. That includes:

- Paying off high-interest credit cards
- Settling personal loans and lines of credit
- Paying overdue medical bills
- Helping loved ones with debts of their own

Think of your home equity as a bucket of water that’s just been sitting there. With a reverse mortgage, you finally get to drink from it—quenching the fire that debt fuels.

The Benefits of Using a Reverse Mortgage for Debt Relief

Now that you know how it works, let’s walk through why using a reverse mortgage to pay off debt might be one of the smartest financial moves you make.

1. Stop Monthly Mortgage Payments

This is huge. With no monthly house payment, your monthly expenses can drop drastically. That free cash flow can go toward necessities or just let you breathe easier.

2. Eliminate or Significantly Reduce Other Monthly Debt Payments

Use those reverse mortgage funds to wipe out credit card balances and loans. Not only do you avoid high interest rates, but you also lower your monthly outgoings.

It’s like spring-cleaning your finances.

3. Stay in Your Home

Unlike selling your home (which might also eliminate your debt), a reverse mortgage still lets you live in your home. No moving, no downsizing, just staying in the place you built your memories.

4. Flexibility with the Funds

You’re the boss here. Whether you want a lump sum to knock out a huge debt, or a line of credit for emergencies, it’s your call. One size does not fit all, and reverse mortgages get that.

5. Tax-Free Money

Yep, the money you receive from a reverse mortgage is generally tax-free because it’s considered loan proceeds, not income. That means more of it goes toward tackling your debt.

What Kinds of Debt Can a Reverse Mortgage Help With?

Not all debts are created equal, but most can be addressed with reverse mortgage funds. Here’s a quick breakdown:

Mortgage Debt

As mentioned, this is typically the first target. Eliminating your mortgage can drastically reduce monthly financial pressure.

Credit Card Debt

This is one of the most common—and most expensive—types of debt for retirees. With sky-high interest rates, it can stick around forever. Paying it off with reverse mortgage proceeds can save hundreds, even thousands, in interest.

Medical Bills

Healthcare costs are no joke, especially in retirement. If bills are piling up, using home equity to clear them can be a game-changer.

Personal Loans

Maybe you took out a loan to fix the roof or help a family member. Whatever it is, a reverse mortgage can clean that slate.

Student Loans (Yours or Theirs)

Believe it or not, many older adults are still paying off their own student debt—or their kids’. Reverse mortgages can help here too.

But Are There Risks?

Of course. Just like any financial tool, reverse mortgages come with potential downsides. Here’s what you should know before jumping in.

Your Equity Shrinks

As you tap into your home’s equity, there’s less of it left. This could reduce the inheritance you leave behind, although some may see debt relief as a more urgent need.

You Must Stay in the Home

A reverse mortgage becomes due if you move out for more than 12 months. That includes going into a long-term care facility. It’s not the best choice if you're planning to move soon.

You Still Have Responsibilities

You’re still on the hook for things like property taxes, home insurance, and maintenance. Fail to keep up with these, and you could default on the loan.

Fees and Interest Add Up

It’s not free money—interest and fees will be added onto the loan balance. However, because there are no monthly payments, it grows over time. This just means the debt gets repaid when the home is eventually sold.

Is a Reverse Mortgage Right for You?

That's the million-dollar question. A reverse mortgage isn’t perfect for everyone, but in the right situation, it can be an incredibly powerful debt-busting tool.

Here are a few signs it might be a good fit:

- You're 62 or older
- You own your home (or have considerable equity)
- You're struggling with high-interest debt
- You want to stay in your home long-term
- You're tired of juggling monthly payments on a fixed income

Still unsure? Chat with a certified financial advisor or a reverse mortgage counselor. They can help you weigh the pros and cons based on your personal situation.

Real-Life Story: Meet Carol

Let’s bring this to life. Carol is 69 and lives in her family home, which is now worth about $400,000. She still owes $80,000 on her mortgage and has about $25,000 in credit card debt, plus medical bills from a recent surgery.

The mortgage payment takes a big bite out of her Social Security check each month, and the credit card interest seems never-ending.

Carol decides to take out a reverse mortgage. The loan first covers her remaining $80,000 mortgage, which wipes out her monthly house payment. Then she uses a portion of the remaining proceeds to pay off her $25,000 in credit card debt.

Now, instead of worrying every month, Carol spends her time gardening and visiting grandkids—with less stress and more peace of mind.

Final Thoughts: Debt-Free Dreams Can Be a Reality

Let’s be honest—retirement is supposed to be about enjoying life, not stressing about how to pay off credit cards or juggle bills. If you're sitting on a pile of home equity, a reverse mortgage could be your golden ticket to debt freedom.

It’s not magic, but it sure can feel like it.

Like any big decision, this one should come with careful thought and professional advice. But with the right guidance, a reverse mortgage could help turn your financial stress into financial strength—and let you finally breathe easy again.