More retirees are grappling with large credit card debt

Medicine, over-spending listed as reasons for trend

July 07, 2002|By KNIGHT RIDDER/TRIBUNE

For this Depression-era generation, the lesson has been to pay your debts and owe no one.

But at a time when senior citizens should be basking in their retirement, a disturbing trend is emerging: Many are struggling to pay off credit card bills.

And the use of credit cards by the elderly will continue to increase over the next two decades, according to Robert D. Manning, professor of humanities at Rochester Institute of Technology in New York.

"The elderly are living longer, and that's leading to a host of abuses," Manning said. "The aging of the boomer generation means you've got people aging into debt, which typically you didn't have."

Eventually, Manning said, the use of bank credit cards by seniors will mirror their use in the general U.S. population.

"We're seeing some serious debt - $40,000, $50,000 and $60,000 in credit card debt," said Suzanne Cobb, director of the Guardianship and Money Management program at Senior Citizens of Greater Dallas, a nonprofit organization.

"They're using those credit cards to pay for basic necessities, prescription drugs, groceries. The credit card company will send them another application, and it just snowballs on them."

A big reason for the increasing debt, experts say, is that many seniors haven't saved enough for retirement. Or that some costs, like medication, are grabbing increasingly large shares of their limited income.

That's the case with Juanita Spencer, 84, of Dallas, who charges more than $200 a month on medicines.

Spencer, like most senior citizens, receives Medicare, but it covers prescription drugs in only a few cases.

"These are all necessities," she said, holding up a large plastic bag of drugs she takes for various health problems. "There ought to be a way people can have medicine without going into debt for it."

Spencer suffers from high blood pressure and other ailments involving her stomach, thyroid and bladder. She receives $827 a month in Social Security benefits, which must cover everything from utilities and the mortgage to medical bills and sometimes groceries.

"That's all I have," she said.

Total average debt of households headed by someone age 65 or older jumped from $8,000 in 1992 to $23,000 in 2000 - an increase of 188 percent - according to SRI Consulting Business Intelligence in Princeton, N.J., a research and consulting firm. The total average debt figure includes debt from credit cards, home equity loans, installment loans, vehicle loans and margin accounts from brokerage firms. The average balance carried by seniors also rose, from $1,280 in 1992 to $1,897 in 2000 - an increase of 48 percent.

Many senior citizens end up in such debt because they don't understand how credit works, experts say. They don't understand the "nature of high interest charges and penalties that can accrue with credit card bills," said Anthony Liuzzo, professor of business and economics at Wilkes University in Wilkes-Barre, Pa. "By making the minimum payment, your balance can actually go up."

Not to mention the time it takes to pay off the bill. For example, an $8,000 credit card bill with an 18 percent interest rate would take 53 years to pay off if you made only the minimum monthly payment, said John Waskin, executive director of American Credit Counselors Corp. in Huntersville, N.C. Most of the payment would go toward interest.

The easy availability of credit and a desire to keep up with the Joneses also contribute to seniors' credit problems, experts say. "They also feel peer pressure to spend beyond their means," Liuzzo said.

While senior citizens of Spencer's generation abhor debt, the free-spending baby boomers will find themselves mired in debt well into their retirement, said Manning, author of Credit Card Nation: The Consequences of America's Addiction to Credit.

"Unlike their parents and grandparents, many future U.S. seniors will experience more severe hardships in their older years due to greater household debt, more limited and fragmented family support networks, higher medical costs, increased longevity and shrinking public assistance programs," Manning said in his book.

For Spencer, paying off her credit cards is the one legacy she'd like to leave.

"I just don't think I'm going to be here too much longer, so that's why I'm trying to get out of debt," she said. "I can't be in debt and die."

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