Living on Disability: 10 Financial Planning Tips

Learn how to live while waiting on—and even after you get—Social Security disability payments.

By , Attorney
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The application process for Social Security disability insurance (SSDI) is usually long, especially if you're denied benefits and need to file an appeal. While the process could be as short as three months, it might take a year or two before you're approved for disability benefits.

In the meantime, you might have trouble paying your mortgage, credit card bills, medical debts, and other financial obligations. Even after you're awarded benefits, you might find it tough to make ends meet on the amount you receive each month. (The average SSDI payment is about $1,300.) So, you'll have to figure out how to live while waiting for disability income and how to live on disability payments when you start receiving them.

But don't panic: You have options. Here are a few money management strategies that can help you survive financially before your disability benefits kick in, and even once you start getting the payments.

1. Make a Budget and Stick to It

While you need to pay for food and other essentials, you might be spending too much on these items. The cost of eating out instead of at home or driving your own car instead of catching public transportation might seem insignificant, but those expenses add up. You might be able to make different choices and save some money.

Review your debts and expenses to see where your money is going and identify areas for improvement. Then, make a budget and stick to it.

If you see something you hadn't planned to buy and don't immediately need, skip it. And don't buy an item just because it's on sale. Don't spend on things you don't really need. If you purchase an unnecessary $50 item on sale for $30, you haven't saved $20; you've needlessly spent $30.

Also, periodically check your budget against your actual spending patterns. Are you spending more than you planned? If so, adjust your spending habits accordingly. Adjust your budget if sticking to it isn't helping the way you thought it would.

2. Get Help From a Nonprofit Credit Counseling Agency

If you need help dealing with your creditors or managing your finances, consider contacting a nonprofit credit counseling agency. Credit counselors give advice about handling debts, managing finances, and developing a budget—and will work for free or at a minimal charge. A counselor can also:

  • let you know whether you might be judgment proof (see below)
  • tell you if a debt management program could be appropriate for your situation, and
  • help you understand the implications of filing for bankruptcy. (For more on that option, see below.)

If you decide to get assistance from a credit counseling agency, check out the company's credentials, including whether it's really a nonprofit, first. For-profit debt relief companies often charge excessive fees, fail to perform promised services, or provide bad advice.

Here are a few ways you might go about finding a nonprofit credit counseling agency:

  • Look for a company with accreditation from the Council on Accreditation (COA) or the International Organization for Standardization (ISO).
  • Consider using a member of the National Foundation for Credit Counseling (NFCC), which the COA accredits. (You can contact the NFCC at 800-388-2227.)
  • Find out if the counselors working for the agency are certified by an independent agency, which means they've passed a certification exam that tests for understanding in areas like counseling, budgeting, credit and consumer law, debt management, and bankruptcy.
  • Check to make sure no complaints have been filed against the company with your state attorney general's office, the Better Business Bureau, and local consumer protection agencies.

3. Manage and Reduce Your Credit Card Bills and Other Debts

If you have credit card bills you can't pay while you're on disability, you can try to negotiate with your creditors. For instance, you could be able to negotiate lower monthly payments or a reduced interest rate, either temporarily or permanently. Then, your payments will be more manageable.

Or maybe you'll be able to convince a credit card company to settle your debt by offering to pay less in a lump-sum payment. (Though, you usually have to be behind on payments for a credit card company to accept less than the full balance.)

This negotiation strategy can also work for medical charges or other debts. For instance, some medical providers are happy to work out deals with those who can't pay.

Before contacting a creditor or collector, determine your goals and pick a few negotiation strategies, such as asking for the best possible interest rate. You should also fully understand how your credit card works, including fees, how the balance is computed, and the grace period. That way, you'll know what terms you might be able to adjust.

4. Think Through Your Options When You're Facing Foreclosure

If you own a home and are struggling to keep up with your mortgage payments because you're living on Social Security disability, you might qualify for financial assistance from a state initiative. For instance, you could be eligible to receive money to cover your mortgage payments, property taxes, homeowners' insurance, utility costs, or other housing-related expenses from your state's Homeowner Assistance Fund program.

Many cities and local areas also have organizations that can help you with home costs if you're living on disability income. Or, if you have equity in the property, you might consider refinancing the mortgage to lower your monthly payments. Another option is letting go of the property, like by selling the property, and moving to a more affordable place. But be careful with these options if you have debt in collection. Home equity is protected in certain situations, and you might be giving up some of that protection. (Also, see our article on the various types of housing assistance for SSDI recipients.)

In addition, almost all lenders and mortgage servicers offer "loss mitigation" options (foreclosure alternatives) to homeowners who are having trouble paying, including:

If you have a federally backed mortgage loan and are experiencing a financial hardship due to COVID-19, you can get a forbearance while the national emergency is still in place. If you want to learn more about the alternatives that might be available, contact a HUD-approved housing counselor, who will assist you at no cost.

5. Maintain Health Insurance

Medical emergencies usually can't be avoided, but you can protect yourself by having insurance. Living without medical coverage is simply an invitation to financial trouble. Maintaining health insurance can protect you from unforeseen medical expenses. (And if your disability prevents you from working, you might need ongoing medical assistance.)

People who get approved for Supplemental Security Income (SSI) are eligible for Medicaid, and those approved for SSDI get Medicare, but not until two years after their "entitlement date" (which is often before they apply). If you're waiting for SSDI approval, you might be able to get Medicaid coverage while you wait.

If you don't qualify for Medicaid, you can request a quote for a healthcare plan available under the Affordable Healthcare Act (Obamacare) that covers preexisting conditions. You might be eligible for cost-sharing reductions (discounts that lower how much you must pay for deductibles, copayments, and coinsurance) or a premium tax credit.

To help people afford individual health coverage, a premium assistance credit is provided for those who purchase health insurance from a state exchange and aren't eligible for other affordable coverage. As originally designed, the premium tax credit was only for low- and moderate-income people whose household income was between 100% and 400% of the federal poverty level (FPL). However, Congress removed the 400% of FPL limit for 2021 through 2025.

6. Deal With Your Student Loan Payments

Fortunately, most federal student loan payments are on pause and interest is waived through December 31, 2022. Collection actions, wage garnishments, and Treasury offsets for defaulted federal student loans are also paused during this time. While your federal student loan payments are on hold, it's a good time to learn about programs that might provide relief in the future, like cancellation, deferment, and forbearance, as well as income-based repayment plans.

Also, you can qualify for the cancellation of $10,000 in federal student loan debt ($20,000 if you went to college on Pell Grants) if you earned less than $125,000 per year (or your household earned less than $250,000) in 2020 or 2021. The Biden Administration will be providing more information on this option by the end of 2022.

If you have private student loans, you should know that some lenders offer different options to help borrowers who aren't covered by the federal student loan payment suspension.

7. Be Careful About Riskier Sources of Income

Other, riskier sources of income might be available while you wait for the SSDI process to play out or if you need additional money while receiving disabillity income. For instance,

  • you might be able to borrow against or cash out your 401k or life insurance plan
  • if you own your home, you might be able to take out a home equity loan or line of credit
  • you might be able to get another kind of loan, like a personal loan, or
  • you could try to get another credit card.

But with any of these options, if you're living on Social Security alone, you're taking a considerable risk of not being able to pay the debt back, and they're only for emergency situations. Your SSDI application could take longer than expected to get approved, you could have to deal with a long appeals process, or your application might get denied. Or you might not be able to repay the debt even after your disability payments arrive.

So, choosing any of these alternatives isn't a good idea for most people. But for a disability claimant who has a good chance of being approved and is in a desperate financial situation, these are possibilities to consider as a last resort.

8. Check Out Other Options for Staying Afloat Financially

It sometimes pays to look for hidden money. If you move or leave a workplace, someone who owes you money might not be able—or want—to find you. After a certain amount of time, the money becomes "unclaimed" and must be turned over to the state.

To find out if you have unclaimed cash or other property waiting for you, search for your name in your state's unclaimed property database. If you're owed money and you make a claim, you'll get a payment in a couple of weeks. You can find a link to your state's unclaimed property database on the National Association of Unclaimed Property Administrators (NAUPA) website.

You might also have options that aren't so hidden. If you're in dire financial straits, you might be able to qualify for public assistance, food stamps, energy assistance, or other programs. For example, you might be eligible for some of these programs:

Get in touch with your local Department of Social Services (DSS). DSS workers can usually inform you about different assistance programs in your area. Family, friends, churches, and religious organizations are also sometimes willing to offer aid with basic needs, like rent or mortgage payments, utilities, clothing, food, and other necessities.

9. If Appropriate, Consider Bankruptcy

You might consider bankruptcy if you really don't have money to pay your bills and if the circumstances are right. But if you're living on disability income, the first thing you should ask yourself is, "Would I actually benefit from filing for bankruptcy?"

Most people on disability benefits are judgment-proof because all of their assets are safe from creditors due to exemptions. So, it might not be worth it to file. But if you think filing for bankruptcy could help your situation, the next issue you'll want to investigate is whether you can protect your monthly disability payments and any lump sum of back payments.

The federal Social Security Act generally protects ongoing disability benefits from being seized. But don't commingle (mix together) your SSDI money with other funds because you could lose your exemption status. So, keep your SSDI funds in a separate account. Also, you should know that it's usually hard to protect large amounts of cash if you file for bankruptcy, so if you have a lot of money in that account, make sure that your specific state exemptions allow you to protect it.

Most people who file for bankruptcy and are on a fixed income file for Chapter 7 bankruptcy because they don't qualify for Chapter 13, which requires a repayment plan.

If you decide to file for bankruptcy, you'll want to get the timing right. For example, if you have ongoing medical problems, which could generate more debt that bankruptcy might be able to wipe out, you don't want to file too soon. Before you decide to file for bankruptcy, be sure to talk to a bankruptcy attorney to learn how bankruptcy could affect your disability benefits and whether it's in your best interest to file.

10. Speed up the SSDI Process by Hiring a Lawyer

If you haven't been approved yet for disability benefits, you're no doubt eager to get them. To some extent, you can't control the time it takes to get an initial SSDI decision. Nor can you control how long the appeals process takes. (Two-thirds of all initial disability applications get denied.)

But one way to speed up the disability approval process is to retain an experienced disability expert who can help you complete the application correctly and build a solid, clear claim for benefits. A disability lawyer or advocate can make sure to submit all of your information and documentation correctly to reduce your chances of receiving an initial denial. If you get an approval right after your initial application, you save months of having to appeal and wait for a hearing.

If you do get denied, a disability lawyer can also file a prompt appeal on your behalf and represent you at your hearing.

Updated September 8, 2022

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