How credit card debt delays retirement dreams

While retirement often is viewed as a well-earned conclusion to the grind of the working world, a growing number of older Americans are finding it clouded by credit card debt.

Almost 50 percent of households headed by someone between 55 and 64, and 37 percent between 65 and 74, carry credit card debt, according to the Federal Reserve's most recent Survey of Consumer Finances, released in February 2009. In fact, about 30 percent of households headed by a retiree carry balances.

How card debt ruins retirement dreams"One of the saddest things I see is people entering what they want to be a comfortable, reasonably stress-free time of life. When they're entering with credit card debt, it can get scary," says Scott Crawford, founder and chief executive officer with DebtGoal, an online service that helps users pay down their debt.

The theory that one's expenses will drop significantly in retirement increasingly doesn't hold up, says Jordan Goodman, author of the book, "Master Your Debt." True, many people save on work clothes and commuting. However, those costs typically aren't on the scale of any medical expenses they may incur. And, retirees who remain healthy often want to travel and do the activities they didn't do while working -- many of which cost money.  

In fact, rising debt levels are contributing to a jump in bankruptcy filings among older Americans, Goodman says. In 1991, people 55 and older accounted for 8.2 percent of bankruptcy filings, according to "Generations of Struggle," an AARP study. By 2007, that number had almost tripled to 22.3 percent.

When charging habits don't change with your lifestyle
Marti Deadwyler is a 64-year-old living in the Twin Cities. She and her husband were doing fine until a few years ago. That's when family issues forced her to take a leave of absence from her job, before having to exit the company altogether. Her attempts to find another position just as the economy was taking a nosedive were unsuccessful. Her husband had taken early retirement some years earlier, so Deadwyler had been the primary breadwinner.

In addition, over about 10 years, Deadwyler had run up about $60,000 in credit card debt. "I wasn't thinking," she says. "It became so routine to flip a card" to make purchases

This summer, even after drastically cutting back purchases and trying to find a way out from under the debt, Deadwyler and her husband declared bankruptcy. She recalls hearing stories as a kid about the Depression and wondering what it would be like to not know whether you would be able to eat each day. "At 63, I started being concerned myself. We were paying so much to the credit cards, we didn't have food on the table."

When card debt cuts into retirement savings
Even for people who avoid bankruptcy, mounting credit card bills can lead to trouble in several ways. For starters, it cuts into their ability to save for retirement. More than six in 10 respondents to the 2010 Scottrade American Retirement Study said that debt was an impediment to saving.  

And, as cardholders move into their 50s, their ability to pay off their balances declines. People who lose their jobs after about age 55, whether through job cuts or for medical reasons, are unlikely to find new ones that offer similar salaries, says Bill Driscoll, a financial planner in Plymouth, Mass. "If they're not well prepared at that point, they have to downsize their lives."

Randy Curtis, 57, retired in January after about 22 years working for the Illinois prison system. Along the way, he accumulated about $70,000 in credit card debt, largely by eating out and spending on radio equipment; Curtis is an amateur radio enthusiast.

"Age and wisdom" prompted Curtis to start an intense debt reduction program about a year ago, with the aid of DebtGoal. "The debt was burning a hole in my soul," he says. Since starting the program, Curtis has chopped about $13,000 from his balance. That's not to say that it's easy -- about half Curtis' income goes to paying off credit card balances. He's sworn off dinners out and new purchases, and he's indefinitely postponed his dream of buying a house in the country. 

What you can do now
If you're approaching or in retirement, several steps are key to reducing your credit card debt. First, "diagnose reality as early as you can," Crawford says. The longer you wait, the more time you're leaving for your financial obligations to grow, making it harder to get ahead of them.

Consider steps that are drastic, but will free up larger amounts of cash, such as moving to a smaller house or selling a car. The goal is to create as much cash to put toward your bills.

If you feel that you're in over your head, seek out a legitimate credit counselor, Goodman says. The counselor can help you set up a payment plan and may be able to work with the card companies to lower your interest rate.

For homeowners, another option is a reverse mortgage, or a loan that lets you convert some of the equity in your home into cash. However, keep a close eye on fees, as they can add up, Goodman notes.

The best bet, of course: Avoid running up balances to start. "Budget forward, not backward," Deadwyler says. That is, set aside money to pay for expenses before they occur. "It's not a sacrifice; it's just a mode of living." 

See related: 11 ways for seniors to mop up credit card debt, Trying to cut spending? Go BIG!, Debt can slow down retirement goals, Emergency fund, retirement, come before credit card debt, Rethinking borrowing in retirement, When a medical crisis empties retirement funds

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Updated: 11-23-2017