By JASON VANCLEF Special to the Daily Press
When most people think about credit card debt, they picture struggling college students and young couples.
Still, retirees and baby boomers have become the fastest growing segment with debt problems. Many older people have been forced into a cycle of debt due to a lack of health insurance, increased medical costs, stock market volatility, eroding pensions, reduced income and even the death of a spouse.
Many experts believe the numbers will only continue to rise as retirement funds fall short and the cost of living continues to spiral higher. According to a 2004 study conducted by the Demos research and advocacy organization, nearly one-third of Americans age 65 and older carry credit card balances. Between 1992 and 2001, credit card debt among indebted retirees increased by 89 percent to $4,041.
This trend is not surprising when you consider a credit card industry that has increased its marketing and lowered credit standards. Today, anyone can get a credit card regardless of their income or credit history. Older Americans are finding themselves in this situation not due to frivolity, but because they are simply trying to make ends meet on fixed incomes. The same Demos study showed that 40 percent of their income is spent on debt payments, including mortgage debt. Cash flow is just not keeping pace with the cost of living, particularly with the rising cost of health care and prescription drugs.
Everyone wants to live a comfortable retirement, free from the struggle of credit card debt. If you find yourself in a situation where your debt is unmanageable, the following are four debt-management strategies that can help you get out of the red. ■ Look into a reverse mortgage. This special type of loan converts home equity into cash for homeowners age 62 and older. The money can be received on a monthly basis, as a lump sum payment or can be used as a credit line. The loan does not have to be paid back during the homeowner’s lifetime, so long as they continue to live in the home. As an added benefit, the loan is not taxable and does not affect Social Security or Medicare benefits. ■ Give yourself a loan with your life insurance policy. A cash-surrender loan is a viable option for people holding a permanent life insurance policy with cash value. A life insurance policy has an amount of cash available should the policy be canceled before the benefits become payable. A policyholder can take up to 96 percent of the cash value available in the form of a loan that does not have to be paid back. ■ Consolidate your credit cards. There are many consolidation loans available that offer lower interest rates and allow you to lower your payments or apply more toward the principal. Counselors are available to help you choose the best option to repair your credit and pay off your debt faster. ■ Think twice before tapping into your savings. If you are fortunate to still have money in savings, it may not be wise to use those funds to pay off credit card debt. If your money is in a long-term savings vehicle such as an annuity or CD, you may be better off letting that money grow at a higher interest rate. Although, if your credit cards are accruing interest at a higher rate than what you are earning, it may make more sense to use a portion of your savings toward your debt. Just remember, you should always have some emergency money on hand.
Once your credit card debt is under control, your No. 1 concern should be saving for retirement. It’s never too early or too late to start. If retirement seems out of your grasp because of credit card debt, it might help to talk with a professional who can give you advice specific to your situation. He or she can help you develop a long-term savings plan so you can enjoy your golden years. (Jason Vanclef is a registered financial consultant. Contact him at 800-737- 8552.)
Originally published in the Santa Monica Daily Press print edition on October 20, 2005. Read the original PDF.