Senior Finance: Digging Out of Credit Card Debt

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Finding yourself with growing credit card debt is difficult for anyone, but it can be especially tough for seniors who may be living on a fixed income. They often find themselves paying only the minimum while the high interest rates of their credit cards keep piling onto what they owe. And many times, it’s not that they are spending money on frivolous things – the credit card can become a last resort option when medical bills pile up or food gets too expensive.

Unfortunately, credit card companies are businesses that are out to make money and generally don’t care about the age or circumstance of the person behind the name on their card. The good news is that there are ways seniors can dig out of credit card debt, and sometimes it is those very credit card companies that will help give them a little more financial breathing room.

Just How Bad Is Senior Debt?

Well… it’s pretty bad. The Employee Benefits Research Institute found that in 2019, 68% of American retirees aged 55 and older were burdened with significant debt, which is an enormous jump from the 54% with debt in 1998. The level of debt seniors carry is greater among women and minorities. Keep in mind that this study focused on 2019; the effects the pandemic had on debt are slowly coming to light and look even worse for seniors in debt. According to Investment News, retiree debt doubled in 2020, and the Federal Reserve says debt among the retired is the highest it’s ever been.

Getting out of senior debt has become a serious concern, even well before the pandemic made things worse. A study published on the Social Science Research Network found that one in eight people who file for bankruptcy are 65 and older, which is a 500% increase over 25 years ago. Much of this is attributed to increased healthcare costs, reduced or fixed income in later years, and the risks associated with aging[1].

Those risks can include falls, and that can lead to enormous healthcare costs, especially if you don’t get the care you need quickly after taking a hard tumble. That’s where Alert1 Medical Alerts come in. Our medical alert devices are quite affordable and fit well into a monthly budget, providing much-needed peace of mind when everything else around you might seem stressful.

In 2016, the median debt on credit cards for those between the ages of 65 and 74 was up to about $2,500. Those over the age of 75 had median credit card debt of $2,100[2]. That might not seem like much until you consider that the average social security check is only about $1,413, and that 21% of married couples and 44% of single adults rely on Social Security for 90% or more of their income[3]. So when a financial emergency comes along or an unexpected medical bill arrives, taking out a loan – or getting a credit card – might seem like the only option.

The best time to curtail credit card debt is before it happens. If you use a credit card and pay it off every month, that’s just fine. It’s when the balance begins to carry over from one month to the next and grow exponentially when interest is applied that it becomes a potential problem. It’s also important to get a snapshot of your financial situation, so you can see if there are any problems looming on the horizon.

But keep in mind that even if everything seems fine now, that can change in a heartbeat – literally. As we get older, our bodies begin to change in ways we can see and in ways we can’t. According to The Motley Fool, the odds that you will suffer a catastrophic medical emergency and incur medical debt almost double after the age of 75. And more than 60% of U.S. households don’t have a $1,000 emergency fund to cover these sorts of expenses[4].

And if debt turns out to be a genuine concern, the good news is that there are ways to alleviate the problem.

Helping Seniors Reduce Credit Card Debt

If you are dealing with significant credit card debt, or any other kind of debt that can make your credit cards tougher to pay down, consider these options:

·         Stop using the credit cards. The first thing you should do is probably also the most obvious: stop using the cards! The more you add to the cards, the more your debt increases, and the more interest you pay. Though it might be easy to stop using them on a day-to-day basis, be sure to check each card for subscriptions or other ongoing payments that might be added to them each month. Cancel those or move your payments to another place, such as pulling them directly from a bank account.

·         Use the debt snowball. If there are several cards with debt accrued, rank them in order of most owed to least owed. Then pay the minimums on all the cards, but pay as much as you can to the one with the least owed, to pay it off as soon as possible. Once it’s paid off, that doesn’t give you more money to spend – instead, you take what you were paying on that card and apply it to the next on your list, thus paying that second one off faster. Once it’s paid, do the same with the third, and so on. This creates a “snowball” of payments that grow and grow until the final debt is paid.

·         Call the credit card companies. Credit card companies might be willing to help you by dropping your interest rate for a period of time. Though this doesn’t help you pay down the debt, it does help you from accruing even more debt through high interest rates, and can give you a better jump-start on the debt snowball. Simply call the companies and ask if a lower interest rate is possible.

·         Talk to your financial advisor. If your debt is significant – especially more than the median of about $2,500 in credit card debt for seniors – talk to your financial advisor about what to do next. They might have some solutions in mind, such as pulling from retirement funds or other investments. Don’t do this on your own! Your financial advisor can help you see the long-term implications of moving your money around to pay down credit cards.

·         Turn to a credit counseling service. If talking to a financial advisor is too expensive for you, there are other options. A credit counseling service can be a great help. However, there are many out there that might wind up costing you more than the debt itself! To be sure of what you’re getting, look to the National Foundation for Credit Counseling to find a reputable counseling service in your area.

·         Consider the statute of limitations on other debt. If some of the debt a senior is facing is very old debt – such as collections brought by a hospital or other medical provider from years ago – there might come a point where that debt becomes “bad debt” for the company and is written off. For instance, in California, the statute of limitations to being in a lawsuit to collect debt is four years[5]. After that point, though someone can still be sued for the debt, the odds are very great that the lawsuit will be thrown out. Look at the statute of limitations in your state, or in the state where the debt was incurred, to learn about your options.

·         Think about declaring bankruptcy. If the debt is truly overwhelming, it might be time to speak to an attorney about the potential for filing bankruptcy. It’s never something someone wants to do, but it’s something that can help alleviate a significant portion of debt, and that can lead to an enormous sigh of relief. Someone on a fixed income may be a candidate for declaring bankruptcy. It’s important to remember that in most cases, you will be able to keep your home after a bankruptcy, especially if you file Chapter 13, but this needs to be discussed with your attorney.[6]

How to Avoid Getting Into More Credit Card Debt

Once you’re out of the credit card debt or well on your way to paying it down, it’s vitally important to never go down that path again. There are a variety of ways to do this.

·         Negotiate directly with companies. If you’re dealing with a purchase that you would normally put on a credit card, consider other options. Ask the company if you might be able to make small monthly payments to them directly or use a service such as layaway.

·         Negotiate down medical debt. When it comes to medical debt, there is much room to negotiate. That’s because quite often, the debt that is left over after your insurance pays its share can be significant enough to put anyone in a financial bind, and medical systems are well aware of that problem. Ask for an itemized list of what you were charged for and talk to the hospital or medical center about bringing down some of those costs. They will also be likely to work with you to create a payment plan for what’s left.

·         Downsize. If your payments on your home are too much to handle, your medical debt is rising, your utilities are taking up more money each month, and credit cards seem like the only way you can survive financially, it’s time to downsize. Moving to a smaller home, cutting out some “luxuries” like satellite television or subscription services, and being more mindful of spending are all ways to downsize your life and make finances easier to handle. (Don’t, however, let go of the things that keep you safe and secure, such as a medical alert watch or pendant, your aging in place home modifications, or your help from a professional caregiver; these things matter to maintain your good health.)

·         Don’t count on being able to continue working. Never assume you can continue working throughout your golden years to pay down the debt you have today. And don’t fall into the negative thinking about your golden years being short! In fact, in 1940, the additional life expectancy of a 65 year old person was 14 years. Today, that number has jumped to over 20 years[7]. And with medical advances coming fast and furious, the life expectancy of older Americans will continue to rise. If you’re hit with serious medical issues and not enough retirement funds, you could have a rough time in your future.

Don’t Let Fear Take Over              

Letting fear take over can lead to serious problems of its own. For instance, when you lie awake at night worrying about money, your mental and physical health can begin to suffer. When you become afraid of how you’ll talk to family about the debt issue, you’ll start to put it off and procrastinate until the debt becomes worse.

It’s the same principle with getting a medical alert pendant – when you begin to worry about falling, you are more likely to fall. But if you are proactive and get your emergency response system before an accident happens, you are much more likely to be confident, which can actually decrease your risk of falls.

You might be afraid that if you do file for bankruptcy or otherwise can’t pay your debts, you will then lose the benefits that keep you going financially. That can keep you from taking steps to get out of debt. The good news is that federal law prohibits garnishment and bank levies on certain benefits, including[8]:

·         Social Security

·         Supplemental Social Security Income (SSI)

·         Money from the Federal Employee Retirement System

·         Money from the Civil Service Retirement System

·         Veterans benefits of all kinds

·         Money from Federal Railroad Retirement (including unemployment and sickness benefits)

There might be others, depending upon your state, that are not subject to garnishment in the event of a financial judgment against you.

Serious debt can make you worry. It can keep you awake at night. But before you let those fears take over, talk to a financial advisor. You can figure out a pathway that will take you out of debt.  

As always, Alert1 wishes you health and safety!