SAN FRANCISCO (CBS.MW) - Like many seniors, Lula Smith had a mind to travel when she retired, and she indulged that desire without fully comprehending the limits of her savings.

When her son died in a car accident, Smith, 76, further tapped her nest egg to pay for his funeral and burial costs. She soon found herself turning to credit cards to pay medical expenses for herself and her husband, using one credit card to pay another, and her debt ballooned to $50,000. "I was thinking I still had the same income that I had before I retired, and the cards were available," Smith said.

Faced with reduced retirement savings due to the stock market, rising medical costs and unexpected emergencies, elderly Americans on fixed incomes are increasingly turning to credit cards to survive. Seniors filing for bankruptcy carry twice the credit card debt than filers in their forties, experts said.

 The average credit card debt of those 60-years-old and older who filed for bankruptcy last year was $35,917, compared to $18,233 among the 40- to 49-year-olds who filed, according to the American Bankruptcy Institute, a nonprofit research association.

Consumer credit counselors are seeing the number of older clients swell. And a recent survey found the number of seniors at or near their credit limits has risen, as has the number of seniors who have credit cards. "As the cost of prescription drugs is increasing, as people's retirement portfolios have decreased significantly, expenses are still going to remain there," said Shelley Curran, spokeswoman for Consumers Union, which publishes Consumers Reports. "People are going to have no alternative but to turn to things like credit cards."  "Unlike a younger person, often seniors are on fixed incomes and... it's not like they're going to be able to work a few extra hours or take on a second job in order to get out of the debt they might have," Curran said. "Their hands are tied."
 
Credit counselors see more seniors: Financially strapped seniors are increasingly seeking help at consumer-credit counseling agencies. People over-65 grew to 17 percent of Cambridge Credit Counseling's client base this year from 11 percent three years ago, and the number of 55-plus customers (which includes those 65 and older) grew to 30 percent of clients from 21 percent. Money Management International, a network of counseling agencies, said its 75-and older client base rose 28 percent this year over last.

Thirteen percent of consumers aged 55 and over were very close to their total credit limit last month, compared to 10.8 percent in Sept. 2000, according to an online survey of almost 3,000 people conducted by American Consumer Opinion, a consumer survey company. The survey's margin of error is +/- 2.5 percent at a 95 percent confidence level. And the 55-plus age group was more likely to possess a card, with only 8.2 percent not owning a card, compared to 17.7 percent going without plastic in the 35 to 44 age group, in last month's survey.
 
Debt loads soaring  A separate survey found the total average debt of households headed by someone age 65 or older soared to $23,000 in 2000 from $8,000 in 1992, an increase of 188 percent, and those numbers have likely risen even higher since then, said Larry Cohen, director of SRI Consulting Business Intelligence's Consumer Financial Decisions division. The firm is currently conducting another survey of consumer debt, with results to be released in January.

"There's nothing in the past two years that would suggest that people have started paying off debt faster," Cohen said. "With lower interest rates and the availability of refinancing and other types of credit blossoming on the Internet and elsewhere, people are more and more likely to take advantage of it."  "When you're living on a fixed income, those payments may come monthly or quarterly, but your needs don't follow the same type of a schedule," Cohen said. Seniors "have a need for a service that provides a cash management tool and one of the easiest ones in terms of availability is something like a credit card."

Seniors' debt loads are likely to get heavier rather than lighter as medical costs continue to rise. "Older people who find themselves in a situation where they need a particular prescription drug... have looked at credit cards as one way of dealing with that," said Deanna Sharpe, associate professor in the Consumer and Family Economics Dept. at the University of Missouri, Columbia.

Even for those not facing rising medical costs, the economic slowdown may contribute to increased card use. Consumers often use credit cards when they're in a tight spot, under the assumption that their luck will change soon, experts said. Meanwhile, the debt adds up. "It can take a while to change consumption patterns consistent with the new level of income," Sharpe said. "It's easier making upward adjustments. It's a lot harder to ratchet downwards. We often hold out the hope that it's a short-term situation, therefore 'I'm going to be able to recover and pay off this debt easily.'"
 
Credit card generation: Credit card use among seniors is likely to increase as boomers, who grew up with credit, continue to charge, experts said. The American Consumer Opinion survey found that of those aged 45 to 54, 20.5 percent were very close to their credit limit last month, compared to 18.5 percent in Sept. 2000.  "Folks that are just now entering retirement, the credit card and credit financing emerged in their lifetime," Sharpe said. "They've grown up with credit in a way that the World War II generation did not."

For older retirees who didn't grow up accustomed to credit, mounting debt is often a problem they don't want to face. By the time some seniors go to a credit counseling service to get help, they have so much debt and so little income, credit counselors cannot help them manage their debt, and the only solution is filing for bankruptcy, said Chris Viale, general manager of Cambridge Credit Counseling Corp.  "They come to us too late. They're waiting too long to try to put a method in place. They just continually use credit to live until it's all maxed out," Viale said.

Lula Smith is now working a part-time job to make ends meet, and she takes part in a credit-counseling program. She likes getting out of the house to go to work two days a week, she said, and she now sees her credit-card balances getting smaller, a change from the days when she used one card to pay another. Said Smith: "I was paying them, but I was not seeing where they were decreasing. I was paying the minimum, and the more I paid, it appeared the larger the accounts got."

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October 30, 2002