In this edition of our “Ask the Experts” series, we examine the causes and implications of rising credit card debt among Americans approaching retirement age with some of the foremost experts in the fields of economics, sociology, retirement planning, management, and law.
Credit card debt is on the rise among Americans age 50 and older, according to a joint study from the AARP’s Public Policy Institute and the research organization Demos, sparking concern about the financial well-being of a significant population segment as it approaches retirement age.
The study, titled “In the Red: Older Americans and Credit Card Debt,” found that the average person age 50+ carried a credit card balance of roughly $8,278 in 2012, compared to $6,258 among younger folks. Not only is such a large disparity an aberration from the 2008 version of the study, which revealed relatively consistent debt levels across age groups, but it also speaks to broader societal and economic issues that have evolved in earnest since the Great Recession. This is especially apparent when you consider the types of expenditures that are fostering these prodigious debt figures.
- Half of Americans 50+ are paying for medical expenses on credit, averaging a balance of $893 in this expense category alone.
- 49% and 38% are leveraging credit card debt to make house and car repairs, respectively.
- 34% are leveraging credit to pay living expenses, such as food and rent.
- Around 25% report that job loss has contributed to their credit card debt, while 23% say they’ve used money to help family members who are having financial problems.
Many people might be inclined to simply chalk these statistics up to the economic hardships of the past few years and assume that things will level out as the economic recovery progresses. After all, once people over the age of 50 pay off their plastic, they’ll still have retirement savings accounts, 401(k)s, and home equity to fall back on, right?
Not necessarily. The study also revealed that 16% of people age 50+ used equity from their homes to pay down credit card debt last year, while 18% dipped into their retirement accounts. In other words, the final credit card debt numbers might actually be worse, rather than better, than they initially seem.
In order to get a better sense of what’s caused this curious landscape as well as its broader economic impact, we turned to a few experts in fields ranging from retirement planning to economic policy. You can check out each expert’s insights by clicking their respective name below, or simply jump to the Takeaways section in which we boil things down into a few concise conclusions and offer tips for retirees-to-be eager to get out from under the burden of credit card debt.
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Takeaways + Tips
- Increased debt levels for older Americans could mean any number of things: A disparity between the credit card debt levels of people who are older than 50 and their younger counterparts doesn’t automatically spell doom for the former. One reason for that is older consumers tend to have a greater opportunity to incur debt since their lengthy credit histories and often higher income levels equate to higher credit limits. Or, they could conceivably be leveraging a 0% credit card offer to invest their would-be payments elsewhere for a short period of time.
- However, the reliance on credit card debt to cover day-to-day expenses speaks volumes: Since older consumers generally turn to credit only after they’ve exhausted savings, home equity, and loans against their 401(k), increased credit card debt indicates that little money is leftover for retirement. It also implies that they’ve been struggling for some time now and something needs to change soon if their situations are to improve.
- Indebted consumers age 50 and up are behind schedule for retirement: The traditional life schedule that most people strive to emulate entails buying a home in your 20s, paying off a 30-year mortgage by the time you’re in your 50s, and then building up a nest-egg for retirement which comes in your 60s. People currently in their 50s obviously aren’t debt free and are therefore looking at a much later retirement, if any at all.
- Social Security won’t cut it alone: Not only was the Social Security system based on a much shorter life expectancy than what we’re seeing now, but it wasn’t intended to be self-sufficient either. Rather, it was meant to supplement personal savings and a company pension.
- You should think carefully before taking Social Security benefits early: Opting for Social Security benefits at 62, as opposed to 66, will cost you 25% of your expected lifetime payout and may impact what your spouse receives as well. Earning more than about $14,000 per year between the ages of 62 and 66 will further reduce whatever Social Security benefits you earn during that time.
It’s easier said than done, but the first step toward retirement for consumers age 50 and up is obviously to get rid of any credit card debt as soon as possible. While the recent economic landscape has helped to fuel indebtedness, it ironically also offers a way out too. In the aftermath of the Great Recession, credit card companies have taken to offering 0% interest introductory terms for a year-plus in order to attract new customers who have high credit scores. In fact, the best card on the market – the Slate Card from Chase – offers 0% on transferred credit card debt for 15 months and charges neither an annual fee nor a balance transfer fee.
That means if you’ve been able to maintain excellent credit in the face of rising debt, you could trade in your current high interest rate for no interest at all without paying a dime in the process. Not only could that lessen your financial load in the short-term, but it could also save you around $1,000 in fees and finance charges while allowing you to pay down what you owe much faster. Just make sure to first use a credit card calculator to develop a conservative debt payoff plan because you never know whether 0% rates will still be available a year and a half from now.
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