Nov 25, 2024
A new research study finds that the prevalence of credit card debt – long the bane of seniors who teeter between fiscal responsibility and financial calamity – has made a distressing leap in the last two years.
The Employee Benefit Research Institute, which surveyed roughly 3,600 retirees for its Spending in Retirement study, found that 68% reported outstanding credit card debt in 2024, compared to 40% in 2022 and 43% in 2020.
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Likewise, 31% said their 2024 spending is "much higher or a little higher" than they can afford, up from 27% in 2022 and 17% in 2020. It’s an overall phenomenon that report author Bridget Bearden calls “alarming.”
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The statistics highlight an insidious cycle involving inflation and higher interest rates. As the Consumer Price Index skyrocketed to 8.99% in June 2022, the Federal Reserve responded by raising rates — which while meant to tame rising costs had at least the short-term effect of making all forms of borrowing more costly.
According to Federal Reserve statistics from early November, the average credit card interest rate sits at 23.37%. That's quite the leap from 2020-21 when rates hovered just above 16.25%. By 2022, they hit 17.91% and crossed the 20% threshold soon after.
In 2022, 51% of American households held credit card debt and by 2023 were paying $126 per month in interest alone. Simply put, higher prices plus higher credit card interest equal soaring balances that take longer to eliminate, especially if retirees only make minimum payments.
Mind-numbing numbers
Here's the sobering truth: A credit card balance of $10,000, paid off at $200 a month at the 23.37% rate, would take 15 years and nine months to retire — and cost you an additional $27,745 in interest. This also assumes you don’t put more debt on it.
Yet statistics suggest that retirees are piling up debt rather than paying it down. In its review of data from the Federal Reserve's Survey of Consumer Finances, AARP found that in households headed by people aged 65 to 74, average debt more than quadrupled between 1992 ($10,150) and 2022 ($45,000).
Meanwhile, credit card offerings now extend beyond shopping-related products. Medical credit cards, for example, typically charge a hefty 26.99% APR. That has disquieting implications, given that about 70% of people with medical debt owe $1,000 or more, according to Peterson-KFF.
The EBRI survey respondents acknowledged that they bore some responsibility for their spending situation. Half said they saved less than they needed for retirement given their current economic circumstances, compared to 17% who reported saving more.
But by and large, it’s not sea cruises or shiny new toys driving the debt. Asked to rate their consumption philosophy, just 11% said they had a “spending mindset,” compared to 38% with a "savings mindset." (The remainder were neutral.)
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Three ways to break the credit card debt grip
If you’re caught in the netherworld of 20%-plus interest rates, it’s time to take up some or all of these three strategies for restoring financial control.
Use other forms of credit. If you must borrow, a personal loan carries a much more favorable rate than the typical card. The Fed pegs the average rate on such loans at 12.33%, and a home equity line of credit (HELOC) will often offer even better. Average HELOC rates for a $30,000 line fell to 8.56% as of Nov. 20, the lowest level of the year, according to Bankrate’s nationwide survey of large lenders.
Shop around for better cards. Just because APRs average 23%-plus doesn’t mean all cards charge that much. The global credit reporting and data company Experian offers a list of cards with special introductory offers of 0%. You’ll also want to take a look at cash-back cards, which offer rewards on popular shopping categories including groceries, gas and streaming services.
Free up financial resources to pay off cards. If you have money tucked in a bank account or money market fund, consider using a chunk of that low-interest savings to pay off the high-interest debt — now. You may also want to cut back on continued market investment, as you’ll actually make a far better “return” in many cases by paying off the debt rather than keeping it in your portfolio.
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Lou Carlozo is a freelance contributor to Moneywise.
