Budget Basics
The Seniors Debt Crisis
by Aleksandra Todorova
March 11,2004
4. Leave It Behind
WHEN 83-YEAR-OLD
Dollie Hawkins contacted Consolidated
Credit Counseling Services (CCCS) in Fort Lauderdale, Fla., last summer, she owed
more than $11,000 on her two credit cards. The minimum payments alone were eating
up almost a third of her $899 monthly Social Security check - her only source of
income. "It really had me right against the wall," she says. She saw credit-card
consolidation as her only option.
CCCS renegotiated Hawkins's interest rate from 26%
to 5%, which lowered her monthly payments, and put her on a schedule to be debt-free
in about four years. But even with the lower payments, Hawkins is struggling. This
month, she's skipping the homeowner's insurance bill on her small two-bedroom house in Miami. "I can't do it all at once," she says.
Credit-card debt used to be considered rare among
the elderly, many of whom have spent most of their lives not owning a credit card,
let alone carrying a balance that's beyond their means. But it is rare no longer.
"Credit-card debt is becoming common among older Americans in the same way it's
common among all other age groups," says Tamara Draut, a director at Demos, a New York-based research and advocacy company, and co-author of a recent study on credit-card-debt
trends among retirees.
According to the study, nearly one-third of senior
citizens in the U.S. carry card balances. Within that group, the average debt is
$4,041 - an 89% increase over the past decade. (For all age groups, the average
increased by 53% over this same time period, according to Demos.) The debt increase
is particularly sharp during the first years of retirement, the study found: People
aged 65 to 69 saw their credit-card balances grow by 217%, to $5,844, during the
decade. And since the data used in the study come directly from consumers, rather
than
creditors, the real numbers could be much higher, warns Draut. She may be right.
The rate at which retirees are filing for bankruptcy has more than doubled over
the past 10 years. Retirees are now the fastest-growing segment of bankrupted Americans,
according to research by the Consumer Bankruptcy Project at Harvard University.
What's driving this trend? Longer life expectancies,
soaring medical costs, a bear market that blindsided many seniors - and a credit-card
industry that's willing to lend to just about anyone. These days, even seniors with
little income or poor credit histories can get a credit card - albeit at interest
rates that are far higher than the 13% national average. As a result, seniors who
are having trouble making ends meet are increasingly using credit cards to pay for
basic necessities, says Steve Rhode, founder and
former president of credit-counseling agency MyVesta, who now runs his own money
coaching practice. The average amount
of debt his older clients carry is about $75,000. "The clients I've had who are
seniors are just barely getting by," he says.
In fact, the Demos study found that one in five
credit-card-indebted seniors spend more than 40% of their income on debt payments
alone. (The average senior's household income was $23,118 a year in 2001, according
to the latest U.S. Census Bureau statistics.) The trouble for Hawkins, the 83-year-old
retiree, began 15 years ago when she lost her job and had to live off credit cards
until Social Security kicked in. And once it did, those meager payments barely begun
to dig her out of the deep hole she was in.
Most younger Americans have grown up with credit
cards and are comfortable carrying debt. But for seniors, credit-card debt can take
a great emotional toll. "The people we've talked to are really scared that they're
in debt," says Draut. Worse yet, in their desire to eliminate debt, they can easily
be duped by various debt-consolidation scams or predatory lending practices. The
AARP has warned, for example, that retirees are three times as likely as other Americans
to fall victim to various home-equity scams, whose high interest rates and unaffordable
repayment terms often lead to foreclosure.
At the same time, most legitimate debt-management
strategies available to younger people don't make sense for retirees. The usual
route for many homeowners - a home-equity loan or refinancing - isn't a good idea for someone who has already paid off a mortgage and can't comfortably handle a new
bill. And finding a job is often impossible. "You fill out applications, and they
say they will
call you, but age makes a difference," Hawkins says.
Hawkins's strategy is to slowly pay down her debt,
month by month, until it's gone. "I just say, God help me pay it off, it's going to be a long time," she says.
