The Senior Debt Trap – Senior Planet from AARP
Debt among Americans going into retirement is reaching alarmingly high levels – are you at risk?
The Employee Benefit Research Institute reports that a staggering 68% of retirees surveyed in 2024 are grappling with outstanding credit card debt, a significant increase from 40% in 2022. Additionally, the Federal Reserve’s Survey of Consumer Finances reveals that debt has more than quadrupled for households headed by individuals aged 65 to 74, rising from $10,150 to $45,000. For those aged 75 and older, debt has surged sevenfold, from $5,000 to $36,000 between 1992 and 2022.
According to The Center For Retirement Research, four out of ten older U.S. households are ensnared in excessive debt. “These high-risk households, primarily retirees, often face low incomes or substantial unsecured debt balances, such as credit cards, which accrue interest rapidly,” the Center explains. “Some are overleveraged and may struggle to afford their homes.”
Lending Tree, an online lending platform, indicates that credit card debt is the most prevalent form of debt among seniors, with 93% carrying a balance.
Why Now?
Several factors contribute to this troubling trend. Many individuals are entering retirement with insufficient savings, leaving them reliant on Social Security. Additionally, an increasing number of people aged 50 and over are compelled to exit their careers prematurely due to layoffs, caregiving responsibilities, or health issues.
“If you examine the economy, wage growth hasn’t kept pace with inflation,” explains Usama Ashraf, CFO of Prosper Marketplace. “Consequently, individuals are resorting to credit card debt for their expenses and struggling to pay off their balances each month.” He emphasizes that the mismatch between living costs and wage growth exacerbates the issue.
“The danger for everyone, particularly seniors, is that credit card interest rates are high, making it challenging to pay off balances on a fixed income,” he adds.
Emotional Price of Senior Debt
This mounting debt is taking an emotional toll on seniors, according to Mary Clements Evans, a financial planner and author of “Emotionally Invested: Working to Bring You Financial Happiness & Change the Way You Think About Money.”
“Many seniors are stressed, often through no fault of their own,” she notes. “My heart goes out to them.” Some individuals struggle with spending habits that persist into retirement, leading to escalating credit card debt. “They are unhappy and constantly worried, living in a state of anxiety,” she adds.
Avoiding Senior Debt
The key to avoiding heavy debt in retirement lies in pre-retirement planning, according to Ashraf.
Budgeting
“It begins with establishing a clear budget. Before entering retirement, assess all your expenses and income sources,” he advises. “Ideally, if you use a credit card, aim to pay it off at the end of each month to avoid high-interest costs.”
“If you can’t pay it off immediately, do so as quickly as possible to minimize interest charges,” Ashraf suggests. “A solid budgeting process is essential—analyzing your income sources and expenses each month to align them closely.”
Loan Consolidation
Ashraf also recommends loan consolidation as a potential solution for seniors burdened by high credit card debt.
“Current average credit card interest rates exceed 20%,” he explains. “However, if you have good credit, you might secure a personal loan with an APR around 13%, saving you over 10 percentage points compared to credit card rates. If you have home equity, a home equity line of credit or loan could offer rates below 10%, resulting in significant savings.”
How to Start
If you find yourself in a difficult situation, there are several options available to help.
A Word of Warning
However, exercise caution. Credit counseling scams are prevalent, particularly among older Americans. Before engaging with any credit counseling service, verify its reputation with your state’s attorney general’s office or local consumer protection agency to check for complaints.
YOUR TURN
Are you concerned about debt as you age? What steps are you taking to address it? Share your experiences in the comments!
Stay on top of your finances with Senior Planet from AARP. Join us for live lectures on finance, money management, budgeting tips, articles, and more. Check out all our offerings here. Questions? Call our Senior Planet Tech Hotline: 888-713-3495.
Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post, and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also the author of “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services from AARP make no claim or promise of any result or success.
Debt among Americans going into retirement is reaching alarmingly high levels – are you at risk?
The Employee Benefit Research Institute reports that a staggering 68% of retirees surveyed in 2024 are grappling with outstanding credit card debt, a significant increase from 40% in 2022. Additionally, the Federal Reserve’s Survey of Consumer Finances reveals that debt has more than quadrupled for households headed by individuals aged 65 to 74, rising from $10,150 to $45,000. For those aged 75 and older, debt has surged sevenfold, from $5,000 to $36,000 between 1992 and 2022.
According to The Center For Retirement Research, four out of ten older U.S. households are ensnared in excessive debt. “These high-risk households, primarily retirees, often face low incomes or substantial unsecured debt balances, such as credit cards, which accrue interest rapidly,” the Center explains. “Some are overleveraged and may struggle to afford their homes.”
Lending Tree, an online lending platform, indicates that credit card debt is the most prevalent form of debt among seniors, with 93% carrying a balance.
Why Now?
Several factors contribute to this troubling trend. Many individuals are entering retirement with insufficient savings, leaving them reliant on Social Security. Additionally, an increasing number of people aged 50 and over are compelled to exit their careers prematurely due to layoffs, caregiving responsibilities, or health issues.
“If you examine the economy, wage growth hasn’t kept pace with inflation,” explains Usama Ashraf, CFO of Prosper Marketplace. “Consequently, individuals are resorting to credit card debt for their expenses and struggling to pay off their balances each month.” He emphasizes that the mismatch between living costs and wage growth exacerbates the issue.
“The danger for everyone, particularly seniors, is that credit card interest rates are high, making it challenging to pay off balances on a fixed income,” he adds.
Emotional Price of Senior Debt
This mounting debt is taking an emotional toll on seniors, according to Mary Clements Evans, a financial planner and author of “Emotionally Invested: Working to Bring You Financial Happiness & Change the Way You Think About Money.”
“Many seniors are stressed, often through no fault of their own,” she notes. “My heart goes out to them.” Some individuals struggle with spending habits that persist into retirement, leading to escalating credit card debt. “They are unhappy and constantly worried, living in a state of anxiety,” she adds.
Avoiding Senior Debt
The key to avoiding heavy debt in retirement lies in pre-retirement planning, according to Ashraf.
Budgeting
“It begins with establishing a clear budget. Before entering retirement, assess all your expenses and income sources,” he advises. “Ideally, if you use a credit card, aim to pay it off at the end of each month to avoid high-interest costs.”
“If you can’t pay it off immediately, do so as quickly as possible to minimize interest charges,” Ashraf suggests. “A solid budgeting process is essential—analyzing your income sources and expenses each month to align them closely.”
Loan Consolidation
Ashraf also recommends loan consolidation as a potential solution for seniors burdened by high credit card debt.
“Current average credit card interest rates exceed 20%,” he explains. “However, if you have good credit, you might secure a personal loan with an APR around 13%, saving you over 10 percentage points compared to credit card rates. If you have home equity, a home equity line of credit or loan could offer rates below 10%, resulting in significant savings.”
How to Start
If you find yourself in a difficult situation, there are several options available to help.
A Word of Warning
However, exercise caution. Credit counseling scams are prevalent, particularly among older Americans. Before engaging with any credit counseling service, verify its reputation with your state’s attorney general’s office or local consumer protection agency to check for complaints.
YOUR TURN
Are you concerned about debt as you age? What steps are you taking to address it? Share your experiences in the comments!
Stay on top of your finances with Senior Planet from AARP. Join us for live lectures on finance, money management, budgeting tips, articles, and more. Check out all our offerings here. Questions? Call our Senior Planet Tech Hotline: 888-713-3495.
Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post, and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also the author of “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services from AARP make no claim or promise of any result or success.
