How to Escape Credit-Card Quicksand
Easy credit and fixed incomes pull many older adults into debts they cannot afford, but there are ways out
Editor’s note: This is part 5 of a 12-part collaborative series between Next Avenue and Marketplace Morning Report.
Cheryl Hines is 74 years old and quick with a smile. She uses a cane, but she doesn't seem to need it much. Hines — pronounced like the ketchup, she tells me with a laugh — lives in an apartment in a 55-plus complex on the outskirts of the Twin Cities. She moved into the high rise about a decade ago. She was a nurse for much of her career. She also held jobs in physical therapy, a domestic abuse organization and as a receptionist. Hines has credit card debt.
"When I married, it was very traditional, and my ex-husband controlled a lot of the finances, and it was kind of a very traditional marriage," she says. "When I divorced, I was not very good at handling money, and so I had to learn. And then, with some dental issues and stuff like that, I got into debt, and it was easy to put things on credit cards."
Living on Credit Cards
Hines has plenty of company, unfortunately. A recent survey by AARP reveals that nearly half of adults aged 50 and older who are carrying credit card debt are using their cards to pay for basic living expenses: food, utilities and rent. Medical debt is also a growing problem among older people, and the bill is often put on credit cards that often charge annual interest rates of 20% or more. Of the AARP survey respondents who carried credit card debt, most owed $5,000 or more, and 28% carried balances of $10,000 or more.
"It was easy to put things on credit cards."
Dental issues are the main reason Hines has credit card debt. She also enjoyed spending on gifts for her children and grandchildren during the holiday season, she says. Hines lives on a fixed income — Social Security and a small pension.
Feeling oppressed by her debt, she eventually turned for help at Lutheran Social Services, a faith-based, health and human services organization. "It looks like over 30% of the clients that we are seeing recently are 55 and older, so it's one out of every three people that we see would be considered in that category," says Kim Miller, senior program manager of partnerships and financial education with Lutheran Social Services Financial Education.
Miller says most people have a good mental picture of their finances. They know how much money is coming in and how much is going out. Problem is, something happens — a divorce, the death of a spouse, a layoff, medical and dental issues — and suddenly they find themselves owing money. High prices for groceries and other everyday living expenses also upended budgets during the recent surge in inflation rates.
"There's a lot of expenses that even when you're on a fixed income it's hard to maintain, like property taxes and homeowners insurance continue to go up," says Miller. "Which then affect people's ability to save for discretionary spending, and then they turn to credit card debt to float the difference."
Time-Tested Ways to Cut Debt
There is no magic formula for quickly eliminating debt and reducing stress. That said, there's also no reason for despair. There are time-tested solutions that work. Many people manage to reduce and eliminate their debts through a combination of budgeting, determination and time. Tapping into your network of friends for support, accountability and budgeting ideas is often an effective strategy. Others find it helps to seek out professional credit counselors for their advice and practical suggestions.
"I always reassure people when I do workshops or when our counselors meet with people that they are not alone."
"We get questions all the time like, am I the worst you've ever seen? Or this is so embarrassing, I didn't expect to be in this situation," says Miller. "And I always reassure people when I do workshops or when our counselors meet with people, is that they are not alone. No, you're not the worst that we've ever seen."
Hines entered a debt repayment plan with the Lutheran Social Services. A credit counselor at the nonprofit organization negotiated a lower interest rate from Hines' lenders. In return, she agreed to an automatic monthly lump-sum repayment to her creditors funneled through the nonprofit. She found her conversations with counselors at Lutheran Social Services and entering the debt-management program relieved her financial and mental stress.
"It has helped me to realize that you don't have to feel alone, that there is help," she says. "Sometimes when you're alone it feels very alone to be in debt. You feel like you don't have a way out, and you don't really want to talk to other people about it. But you can because there are resources. There are secure and safe resources."
Expert Advice at No Cost
Sad to say, with more older people struggling to get out from under their debts, scamsters and fly-by-night operators are trolling for business. "I also encourage the older population to contact the nonprofit credit counseling organization to help build a plan or negotiate with the creditors, but most importantly, I advise them to avoid those high-cost lending options like payday loans," says Tonia Brinston, founder of SLAP Financial Consulting (SLAP stands for "Sounds Like A Plan"). "I refer them to speak to a trusted advisor."
To make sure the credit counseling service is reputable, personal finance experts recommend getting in touch with the National Foundation for Credit Counseling. The Justice Department offers a list of approved credit counseling agencies on its website. The National Council on Aging has a succinct guide to options for eliminating credit card debts.
Editor’s note: This article is part of our “Debt Free” series, a Next Avenue initiative made possible by a grant from the RRF Foundation for Aging.
