Pre-retirees Incurring Large Amounts of Credit Card Debt

Credit card debt can be financially crippling at any age, but for those nearing retirement, carrying large balances can have long-term implications that may threaten their golden years.

Working adults generate income that can be used over time to eliminate credit card bills and slowly improve their financial situations. Retiring individuals, in contrast, may be forced to either delay their decision to leave the workforce, obtain a part-time job to cover payments or use a portion of their savings to pay off their balance.

In worst-case scenarios, retirees may not have enough income leftover to meet their needs over the years, which can jeopardize their ability to outlive their savings.

This is becoming a stronger probability for a large segment of elderly Americans, according to the Demos 2012 Survey on Credit Card Debt of Low- and Middle-Income Households.

The research shows that middle-income individuals 50 and older are carrying higher credit card balances than younger individuals. This is a stark reversal from the 2008 study, when the opposite was true. According to the report – which was conducted jointly with AARP – older households in the older age group carried average balances of $8,278 in 2012, compared with average balances of $6,258 for the under 50 crowd.

Reasons for high credit card debt

Basic living costs and medical bills were the primary types of balances most older adults carried. For example, a third of older respondents said they used credit to cover rent, mortgages, groceries and utility costs. Half of respondents 50 and older also said they used credit to pay for medical expenses and dental care. Lastly, 25 percent said a job loss contributed to their credit card debt in the last three years.

These scenarios are problematic because many have no other recourse but their retirement savings to pay off their debt. Eighteen percent of those nearing retirement said they have already dipped into retirement savings to pay down all or a portion of their debt. Entering one’s golden years with credit card balances can be dangerous, so it’s necessary that older adults work with a professional, such as a credit counselor or advisor, to develop a plan for eliminating debt. This may include better budgeting, utilizing a zero percent balance transfer credit card or entering a debt repayment or consolidation program. These options will largely vary by a person’s unique situation, and working with a professional can provide consumers with more clarity and guidance on which choice works best for their circumstances.