Copyright 2002 MarketWatch.com Inc.,
All Rights Reserved
MarketWatch.com,
October 30, 2002 Wednesday 8:35 AM
HEADLINE: More seniors turn to credit cards to survive hard times,
BYLINE: Andrea Coombes, CBS MarketWatch.com;
mailto:acoombes@marketwatch.com
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
NOTE FROM DIANE L. DRAIN: BEWARE - these debt counselors and debt consolidation companies do not disclose to their clients that the credit industry considers the use of their services to have the same credit effect as filing bankruptcy. Most of these companies will pay themselves the first year of the contract and then start paying the creditors. If you do not stay with the full contract then the creditors are never paid the amounts they agree to and they will continue with their collection activity. In addition, almost all creditors now file 1099's with the IRS if their entire debt is not paid. So even if the reduced debt is paid through the counseling service, there is still a tax consequences.
_________________________________________________________________________________________________________________
NUMBER
OF SENIOR CITIZENS FILING BANKRUPTCY TRIPLES, March 2004
According to the American Bankruptcy Institute, the seniors who filed for
bankruptcy protection last year had nearly $36,000 in credit card debt, compared
to $18,000 for those filers between ages 40 and 49. And it is truly frightening
to learn that not only has the number of Americans over age 55 who seek credit
counseling grown substantially, but the number of those over age 75 seeking such
help is growing even faster.
Instead of college students and yuppies, seniors are fast becoming the "credit
card generation," spending more than 30 percent of their income on debt
payments. And, unfortunately, by the time seniors seek counseling, it's often
too late.
A new study shows that the average credit card debt of Americans 65 and older
increased by 89% between 1992 and 2001. During the same period, the number of
older adults filing for bankruptcy tripled.
SOURCES: Jan L. Warner & Jan Collins - Jewish World Review, and New York Daily
News