Credit card debt can be daunting, especially if you’re near or in retirement and living on a tighter budget.
Among generational cohorts, Generation X carries the highest average credit card balance at $7,236. That’s about $1,000 more than baby boomers, who came in second with an average balance of $6,230, according to Experian. The lowest average credit card debt by age was Generation Z with $2,312.
“Living on fixed incomes and facing rising inflation on core items such as food, gas, housing, it does hit the elderly hard. I believe we’ll see over the next few years rising credit card balances among older adults—we’ll see more of that in the future,” said Erin Wood, senior vice president, financial planning and advanced solutions at Carson Wealth in Omaha, Neb.
A study in the journal Aging and Mental Health found that carrying a credit card balance is the strongest predictor of struggling to pay monthly bills and facing financial strain—stronger than other non-housing consumer debt and mortgage debt.
“Debt can delay or severely handcuff a retiree or near-retiree,” said DeHaven Becker, partner, managing director and wealth manager with Harmony Private Wealth at Steward Partners in Fort Collins, Colo. “A lot of folks are embarrassed by their debt and don’t deal with it and it keeps becoming a bigger and bigger problem.”
About two in five seniors (43%) carry revolving credit-card debt, according to a survey from advocacy group The Senior Citizens League (TSCL). What’s more, half of respondents have spent their savings or have no emergency fund at all.
“Credit cards are a major problem, especially for the lower income people that still qualify for them but have limited budgets. It’s especially bad as interest rates are going up and inflation is eroding people’s finances,” Mary Johnson, policy analyst with The Senior Citizens League.
Interest rates on debt add additional costs that can be difficult to whittle down for people living on fixed incomes. The average Social Security check is $1,669 average monthly benefit, according to the Social Security Administration. Among older Social Security beneficiaries, 37% of men and 42% of women receive 50% or more of their income from Social Security.
In January, the average credit card interest rate in the U.S. on accounts with balances that assessed interest was 20.4%, according to the Federal Reserve.
Debt among older households has increased substantially in the past three decades. According to a report by the Congressional Research Service, from 1992 to 2019, the share of older households with debt increased from 43% to 62.1%, and the median amount of debt among older households with debt rose from $7,294 to $34,000 (in 2019 dollars).
In 2019, 4.8% of older households with debt had a negative net worth, or debt that is greater than assets. Those households with negative net worth were more likely to identify as Black, Hispanic or Latino, or single (divorced, separated, widowed or never married) or at the bottom income levels, the report said.
“We do regularly see a good amount of seniors in their 50s and 60s carrying credit-card debt and they’re concerned about the amount they’re carrying and it affects their retirement timeline,” said Bruce McClary, Bruce McClary, senior vice president, membership and communications at the National Foundation for Credit Counseling.
What can you do if you’re a retiree or near-retiree facing credit-card debt?
Figure out your budget. “Anyone who is having trouble making ends meet, put it all on paper to determine what the next steps are,” McClary said. “If you can, adjust your budget to put more money toward paying off debt faster so you’re not spending decades paying off bills.”
Becker added that it’s important to look at the behaviors or circumstances that led up to the debt. “If you don’t address the behaviors, it will get worse,” he said. “If you have credit card debt over $10,000, something has to give. Reduce the behavior that caused that debt. Anything over $10,000 is pretty daunting.”
One good thing to note is that credit card companies cannot garnish your Social Security benefits, only your paycheck from a job.
Pay off the highest interest rate cards first. There are different approaches to paying off credit-card debt. You can pay off the cards with the smallest balances first to get success under your belt and get motivated to see improvements. But ultimately, paying off highest interest rate cards will save you the most money, Wood said.
Calling credit card companies to negotiate lower interest rates. If you have a good credit rating still, use that leverage to negotiate lower rates with your credit-card companies, experts said.
“For the credit-card companies, much of the information they have on you comes from your application. Your situation may have improved since you applied for the card, so you may have negotiating power to lower your rate,” McClary said.
“Don’t be afraid to call your credit card company and talk to them. They may be able to let you skip payments or reduce your interest rate,” Becker said.
Transfer balances to low- or zero-interest credit cards. “Get yourself some breathing room. A zero percent card can give you a year to get caught up. And it can be done more than once,” Becker said. The cost of transferring a balance is often 3% to 5%, which is less than the 20% or more your current credit-card company may be charging.
Nonprofit credit counseling services. “If at any point you feel stuck and you feel you might benefit from a financial adviser, consider getting help. If you’ve already fallen behind and the situation is more critical, call a nonprofit credit counseling service right away,” McClary said.
Credit card consolidation loans. Consider consolidating your credit card debt with a loan. But make sure you’re not increasing your overall monthly costs or increasing your interest rates with the new loan, McClary said.
Credit card settlement. Negotiate a settlement with the credit-card company. However, be warned that settling for less than the balance due can be reported on your credit report as not paid in full. Also, if you settle a balance for $600 or more, you pay taxes on the forgiven amount, McClary said.
“This often catches people by surprise, so it’s something to take into consideration,” said McClary.
Home-equity loans or reverse mortgages. These are riskier propositions that could lead to losing your home. But for some people, these options make sense, McClary said.
Bankruptcy. This is a last-ditch option for people with massive amounts of debt and no way to dig out of it, Wood said. There’s a lot of other options to consider before this.
Death. If a married couple is on the same card as joint holders and one spouse dies, the living spouse will be responsible for remaining payments. An authorized user on a card, however, generally isn’t responsible for debt if the account holder dies. In community property states, however, a debt can be passed on to a surviving spouse, said Becker.
When a person dies, the estate will notify all debtors that the person has died and there are no assets. If there are assets, the debts would be paid out of those remaining assets.
For family members helping with debts or death costs, be careful, advised Wood. It varies by state, but you could be liable for the debts if you had participated in some of the payoff. It’s best to consult a lawyer.
Do you have questions about retirement, Social Security, where to live or how to afford it at all? Write to [email protected] and we may use your question in a future story.
