Photo by Oleg Ivanov for Unsplash+
If you are carrying over credit card debt from month to month, take it as a warning sign: Your personal finances are sailing rough seas and in danger of capsizing. If you’re already retired and living on a fixed income, it will be even harder to keep your fiscal ship from crashing against the rocks.
Unfortunately, nearly half of Americans aged 50 or older are in the same boat. We’ve been lured by the siren songs of easy credit, attracted by all the nice things we can buy now and pay for later. Only now, it’s later.
Data from the federal Survey of Consumer Finances report that in households headed by people aged 65 to 74, average debt is $45,000 – up from $10,150 just 30 years ago. In households headed by people 75 or older, the average is $36,000, a sevenfold increase.
On the positive side, there are resources available to help navigate through the stormy passages. Also on the plus side, we’ve done away with debtors’ prisons.
On the other hand, major debts can lead to Stress and can damage health. The greater the debt, the worse the health outcomes.
In earlier generations, getting to Retirement debt-free was a widely shared goal. But there are a number of conditions today that make that goal elusive:
Medical debt. We would like to believe that Medicare and supplemental insurance cover costs and avoid debt. Sad to say, millions of families have learned – after the fact – just where the holes are in their coverage. According to the U.S. Consumer Financial Protection Bureau, more than 20% of older adults carry medical debt. Failure to pay it on time damages credit ratings, making it all the harder to obtain loans at reasonable rates.
Inflation. Costs of nearly everything rose sharply in 2021 and 2022. Wages seldom keep up with prices, but for those on fixed income, a higher cost of living equals a lower standard of living.
High interest rates. To put the brakes on inflation, the Federal Reserve has increased interest rates. That means all loans with adjustable rates have raised their rates, too, increasing the cost of borrowing.
Mortgage equity. In previous generations, homeowners generally paid off their mortgages by the time they retired. But that was before homeowners were enticed to capture cash with home equity loans and lines of credit. Millions of older adults today who refinanced their homes are still paying off the loans.
Credit cards. Every day American adults are inundated with offers to get new and better credit cards. With so many invitations to rack up debt, it’s no wonder that millions of consumers purchase more than they can afford. But credit card interest rates are high – the average is 21.5% – and those interest charges rapidly elevate the amount owed.
Student loans. Yes, age is no barrier to owing Money for Education – your own or your children’s.
If you find yourself in this leaky boat, take comfort in knowing you are in good company. You also should know that there’s no reason to blame yourself. “Your credit card debt is not a character flaw,” says Jessica Johnston, senior director for the Center for Economic Well-Being at the National Council on Aging (NCOA). “Most retirees aren’t using their charge cards for frivolous purchases. They’re using them out of necessity.”
Furthermore, the situation, grim though it seems, is not hopeless. There are steps you can take immediately to extricate yourself from the debt burden.
Take a hard look at your income and expenses. Figure out how much you can afford to pay back monthly. Look for expenses you can cut and add what you can save to the amount you can pay. Then…
Contact the credit card companies. Reach out and explain your situation. “Many credit card companies are willing to work with you when you demonstrate a good faith effort,” says Johnson.
Be strategic. The “snowball” strategy is paying the minimum monthly balance on every card, then applying whatever extra dollars you have to the card with the lowest balance. Once you pay off that card, then apply the payments you had been making to the card with the next lowest balance. Like a snowball rolling downhill, your payments keep getting larger. The “avalanche” strategy is to pay off the cards one at a time, starting with the one that has the highest interest rate. Once you’ve cleared that card, apply any extra to the card with the next highest interest rate. The avalanche may take longer, but it is less expensive in the long run because you save the expense of interest charges.
Don’t be afraid to ask for help. A certified, nonprofit credit counselor can help guide you out of debt. A counselor can also help you develop a debt management plan, consolidating your credit card debt into a single monthly payment. Having a plan and sticking to it removes the threat of late fees and calls from collection agencies. But be careful – scammers abound. Be sure you work with a reputable nonprofit agency. (NCOA offers an online guide, Is Credit Counseling Worth It?, which includes links to several reputable national nonprofits offering credit counseling.)
Debt does not have to be a burden forever. Being proactive is the only way to preserve your solvency, your credit rating, and your health.
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