Recently, I wrote a Next Avenue blog post urging parents of this year's college grads to stress the importance of avoiding the bad habits that lead to massive debt. But after reading some unsettling research published this week, I now believe that Americans in their 50s and 60s are the ones who really need help — and they better act soon or they’ll be putting their retirement in serious jeopardy.
The Debt Load of Older Americans
In her excellent Baltimore Sun article, "Seniors Grow Old Under Debt" (written as part of a MetLife Foundation Journalists in Aging Fellowship), Hanah Cho revealed:
- The average overall debt for 55-and-older households more than doubled from 1992 to 2007, topping out at $70,370. (Source: Employee Benefit Research Institute).
- Adults 65 and older are the fastest-growing group filing for bankruptcy protection. (Source: University of Michigan law professor John A. E. Pottow).
- Adults 50 and older owe 17 percent of the nation’s student loan debt. (Source: Federal Reserve Bank of New York).
- Debtors 60 and older represent the fastest-growing segment seeking advice and assistance from the Association of Independent Consumer Credit Counseling Agencies.
Experts cited in Cho's article say health-care bills are the leading culprit for anyone in their 50s and 60s. "One illness or emergency can throw a senior into big debt," said Marceline White, executive director of the Maryland Consumer Rights Coalition.
Who Owes the Most Credit Card Debt
But here's the fact that convinced me older Americans need more help with their finances than college graduates: The age range of low- and middle-income Americans with the highest credit-card debt today is 65 and older — they owe an average of $9,283. By comparison, 18- to 24-year olds in the same wage bracket average just $2,982 in credit card debt; those age 25 to 34 are about $5,156 in the red.
These findings were disclosed in The Plastic Safety Net, a new report by Demos, a nonpartisan public policy research and advocacy organization in Washington, D.C. The group surveyed 997 low- and middle-income households carrying credit-card debt for three months or more.
Demos also reported that Americans 65 and older had cut their debt the least since 2008 — just 5.5 percent, compared to a 51 percent reduction in plastic debt by 25- to 34-year-olds in the same income bracket.
Causes of Steep Credit Card Debt
What accounts for the punishing credit card bills of seniors?
“The recession and the stock market crash decimated the retirement savings that many older Americans rely on to get by,” says Amy Traub, a senior policy analyst at Demos and the study's co-author. As a result, these financial victims tend to rack up credit card charges to cover monthly expenses.
To compound the trouble, Traub says, many older households have little problem qualifying for new credit cards, making it easier for them to increase their debt and dig a deeper hole. “Seniors tend to have better credit than younger households," she notes. I'm wondering if they also are pitched cards with tricky rates at a higher frequency — do they make for easier targets? The quote above makes it seem like there's little they can do, so I'm hoping we can build a bit more of a case for a reason they can do something about.
Advice for Reducing Your Debt
If you're in your 50s or 60s, you'll want to reduce your debt as much as possible before you're on a fixed income or relying mostly on your savings. So take a good, hard look at your household's balance sheet to see if it's possible to pay down — or ideally, pay off — your loans and credit cards. (This Next Avenue calculator shows you how long it would take to pay off your current credit card balance.)
You also may be just a few years away from becoming free and clear on your mortgage. If so, read this Next Avenue article to help determine whether you should pay off the loan sooner.
Above all, try to keep credit card charges to a minimum. Use plastic for major expenses that you’ll need time paying off, such as airline tickets and weeklong car rentals. But avoid charging smaller expenses that you could easily pay by cash, check or debit card, including clothes, restaurants and groceries. You might even try not to buy anything you can't pay off by the end of the month or set aside your credit card altogether and try to manage with a debit card alone, at least for a month or so.
It’s also a good idea to call your credit card issuer and ask for a lower interest rate. You just might get a reduction, especially if you’ve been a loyal customer with a solid payment history. If the issuer refuses, consider switching to a new low-rate card, now averaging about 10.7 percent. Bankrate.com is a good place to compare offers.
Just think: Once you get your debt under control, you'll see how great it feels to break bad financial habits — at any age.