Budget Basics
Charge into retirement
New data show credit-card debt among seniors is growing even as their incomes and investments shrink
By Jennifer Barrett
NEWSWEEK WEB EXCLUSIVE
Oct. 2 -When Consolidated Credit Counseling Services opened a decade
ago in Florida, nearly every one of their debt-laden clients was years away from
stopping work. But in the last two years, that's begun to change.
"THE BABY BOOMER generation is the first generation
that is going into retirement carrying substantial credit-card debt," says April
Lewis-Parks, spokeswoman for the nonprofit group, which is now the nation's fourth-largest
credit-counseling agency. Lewis-Parks estimates that about 8 percent or more of
their clientele now consists of those 55 and older-and that number is likely to
keep growing.
The drop in the value of many retirement funds over
the past few years has made it hard for older Americans to enjoy the retirement
many had expected without incurring more debt. Some opted to push off retirement
a few years and keep working to earn extra income, but those who'd already left-or
lost-their jobs had a tough time finding another one. "Rather than downsize their
lifestyle, they are taking on more debt to maintain the same lifestyle," says Steve
Rhode, president and cofounder of Myvesta, a nonprofit organization that provides
financial counseling services. "It used to be that folks 55 and older were fairly
diligent about finances and were adverse to incurring any debt. Those in their 40s
used to be the worst, but now the repayment terms are being extended and the economy
is not good."
Dollie Hawkins was 83 and had nearly $10,500 in
credit-card debt when she called up Consolidated Credit Counseling Services earlier
this year. By then, the Miami woman's $250 minimum monthly payment (based on a 17.5
percent annual interest rate, according to Hawkins) was eating up nearly a third of her monthly income from Social Security. A former nurse, Hawkins says she began
paying with plastic after trying to find work repeatedly and unsuccessfully over
the past 10 years after the doctors' office where she'd worked for nearly two decades
suddenly filed for bankruptcy. "I just didn't
know how I was going to make it,"
says Hawkins.
So when money got especially tight between checks,
Hawkins paid for groceries, medicine and home repairs with plastic. Consolidated
Credit Counseling Services was able to cut her payments by about $50 a month, but
she still struggles to pay down her debt. "I never thought I would get in this shape,"
she says.
David R. Johnson, director of Consumer Credit Counseling
Service of Los Angeles, says many of the older clients who seek help from his agency
had been coping financially for most of their lives but got into trouble after "loaning"
money to their children or grandchildren or suffering an unexpected medical problem.
"Their kids are fine and then suddenly one loses a job and so the parents step in
to help, or the health costs don't seem so bad, but then there is an injury or serious
illness and suddenly the costs double, triple or quadruple," he says.
Many financial counselors cite soaring medical costs
as one of the primary factors behind the increase in credit-card debt in this age
group. The Demos report points out, for example, that the amount that Medicare beneficiaries
spent on out-of-pocket medical expenses grew at a faster rate than their incomes
did between 1993 and 2000. One 72-year-old retired nurse living in a Dallas suburb,
who asked that her name not be used, says she was charging $1,500 to $2,000 worth
of medicine a month at one point. She takes
13 pills a day for various health problems,
but when she retired eight years ago, she lost the health insurance that covered
it. She eventually got Medicare and additional help through her husband's military
benefits, but by then she had already sunk deep into credit-card debt. When she
finally sought help, she had about $35,000 in debt.
Even high-income earners are not immune to being
saddled with credit-card debt into retirement. Myvesta's Rhode, who provides personal
finance counseling to a number of high-income clients, says clients he coaches in
the 55-plus age group have an average credit-card debt of about $75,000. "Some who
are in the most in debt are those who appear the most outwardly successful," he
says.
While a five-figure debt might have seemed manageable
when they were working, after retirement (or, in some cases, job loss) it became
harder to pay down the debt. "Credit cards are so accessible and so acceptable now,
that it seems OK to keep carrying a balance," says Lewis-Parks. "But older people
don't have the income potential that younger people have; the ability to work and
gain more income isn't there. So they have a harder time getting rid of their credit-card
debt. It's really very sad."
There are other financial options available to many
seniors. Homeowners like Hawkins for example, could qualify for a reverse mortgage,
which allows them to convert the value of their homes to income. Or they could sell their home and move into a smaller one, cutting down on utility costs like heating
and electricity and earning them money on the sale. There are also state tax exemptions
available to seniors and programs for low-income residents to help lower health-care
costs.
But seniors are often unaware of other options and
credit cards seem like an easy stop-gap solution. The credit-card companies themselves
do little to dispel that myth. The Dallas woman who racked up $35,000 in credit-card
debt says she had at least half a dozen cards, some of which she did not even apply
for. And despite her debt, one card company boosted her credit limit to $25,000,
though she was making just $35,000 a year before she retired. "There's an attitude
among consumers that 'They wouldn't give it [credit] to me if I couldn't afford
it'," says Rhode. "But if you can't afford to pay it off, you're a prisoner."
To avoid reverting to credit cards in retirement,
financial advisors recommend taking a proactive approach early on. "While things
are going well, place money aside in emergency savings account, put money aside
for rainy day," says Kelly Rote, spokeswoman for Money Management International,
a nonprofit organization. The former nurse in Dallas, who still owes $19,000, has
her own piece of advice: "Don't use your credit cards if you can't pay them at the
end of the month," she says. "Or just don't use them at all. I wish I hadn't."
