The Senior Debt Trap

Debt among Americans going into retirement is reaching alarmingly high levels – are you at risk? 

The Employee Benefit Research Institute says that 68% of retirees in their survey reported outstanding credit card debt in 2024, compared to 40% in 2022. And the Federal Reserve’s Survey of Consumer Finances found that debt more than quadrupled in households headed by people 65 to 74 (from $10,150 to $45,000) and increased sevenfold for those 75 and older (from $5,000 to $36,000) between 1992 and 2022.

Four out of every 10 older U.S. households are falling into the trap of having too much debt, according to The Center For Retirement Research. “These high-risk households, mostly retirees, tend to be burdened by low incomes or large balances on unsecured debt like credit cards, which accumulate interest at a rapid pace,” according to The Center. “Some are overleveraged and may be unable to afford their homes.”

Lending Tree, an online lending platform, says credit card debt is the most common type among seniors, with 93% carrying a balance.

Why Now?

There are a multitude of reasons for this trend. People are increasingly going into retirement with inadequate savings, leaving them dependent on Social Security. Also, more people 50 and over are being forced to cut their careers short because of layoffs, caretaking duties and health issues.

“Ultimately, if you look at the economy, wage growth hasn’t necessarily kept up with inflation overall. So, people have been using more and more credit card debt for their spending and have been unable to pay off the balance every month,” says Usama Ashraf, CFO of Prosper Marketplace. “Ultimately, in terms of kind of balancing the cost of living and inflation, wage growth has to keep up. There’s been a mismatch in terms of the cost of living and inflation going up, and wage growth not really keeping up across all segments.”

“I think the danger, obviously, for everybody, especially for seniors, is that in retirement, the credit card interest rates are high, and it’s hard to pay off that balance on a monthly basis if you’re on a fixed income,” he says.

Emotional Price of Senior Debt

That debt is taking an emotional toll on these seniors, says Mary Clements Evans, a financial planner and author of the book, “Emotionally Invested: Working to Bring You Financial Happiness & Change the Way You Think About Money.”

“Oh, I think they are stressed, beyond stressed, and some people are there due to no fault of their own,” she says. “And my heart bleeds for that.”

Others are addicted to spending and can’t break the habit when they go into retirement, she says. “And they’re running up credit card debts, but they are unhappy people,” she says. “They are worried all the time. They’re so anxiety ridden.”

Avoiding Senior Debt

They key to avoiding retiring with heavy is pre-retirement planning, says Ashraf.

Budgeting

“Ultimately, it starts with having a very clear budget, and before you’re going into retirement, looking at what all your expenses are and what all your income sources are,” he says. “Make sure that, in an ideal world, if you’re spending money on your credit card, you can pay it off at the at the end of every month and you’re not actually incurring the interest costs, which are really high.

“If you can’t pay it off in the same month, pay it off as quickly as you can, so you’re not racking up those interest charges,” Ashraf says. “But I think the best strategy, really is to have a good budgeting process – looking at your sources of income and then your expenses in a given month and try to match them as closely as possible.”

Loan Consolidation

Ashraf says loan consolidation is one possible solution for some seniors with high credit card debt.

“If you look at the average credit card interest rates right now, they’re over 20%,” he says. “For personal loans, if you’ve got really good credit and you have a high credit score, you can actually get a personal loan that has a 13% APR, so it could save you over 10 points in terms of the credit card interest rate. If you have equity in your house and you’re willing to take a home equity line of credit or a home equity loan that APR could be less than 10%. So, the savings could be as high as 10 percentage points or even more.”

How to Start

If you are stuck, there are a few options that can help.

• Do a new retirement budget and try to pay more than your card’s minimum monthly payment. A financial planner can help with your payoff plan.
• Consider a credit counselor.  The National Council On Aging (NCOA) recommends GreenPath Financial Wellness, a nonprofit agency rated A+ by the Better Business Bureau which offers certified credit counselors.You can also search for credit counselors online. The NCOA says several organizations offer state-by-state directories: The National Foundation for Credit Counseling and Financial Counseling Association of America.

A Word of Warning

But be wary. Credit counseling scams are prevalent, especially among older Americans. If you find a credit counseling service, check with your state’s attorney general’s office and/or your local consumer protection agency to see if it has had complaints filed against it.

 

YOUR TURN

Are you worried about debt as you get older? What are you doing about it? Share your experience in the comments!

 

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Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

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