Ohio Department of Aging Aging Connection - January 2009

January 2009

Reducing Credit Card Debt

January is Financial Wellness Month because, with post-holiday shopping bills starting to arrive and tax season approaching, it is a great time for people to get back in financial shape. Getting out of debt ranks with losing weight as one of the most popular New Year’s resolutions.

According to the National Foundation for Debt Management:

• The average household has 10 credit cards,
• The average interest rate is 18.9 percent, and
• The average credit card balance is $8,000.

Because most seniors live on fixed incomes, they are more likely to be negatively affected during hard economic times. Older seniors, as a group, under-use credit through the years for a number of reasons. Now, they are turning to easy credit card offers and loans to pay bills.

Card debt is one of the top reasons seniors seek bankruptcy protection, according to the National Consumer Law Center. Between 1994 and 2004, credit card debt accumulated by Americans age 65 to 69 grew 217 percent. Seniors use credit cards to pay for doctor's visits, prescription drugs and household emergencies, not on spending sprees. In addition, seniors are taking cash advances to pay off debts they really can't afford to pay.

Credit card payments include both interest and principal (the amount borrowed). According to Financial Planning.com, when a consumer pays only the minimum payment, most of it goes toward the interest, typically 90 percent interest and 10 percent principal. This is why it takes so long to pay off the original debt. Paying the minimum payment each month means a consumer will be paying the credit card company much more than the original amount borrowed.

Some warning signs that a consumer is carrying too much credit card debt are:

• You don’t know how much total debt you have.
• You don’t have any savings.
• You only make the minimum payment on your credit cards each month.
• You continue to make purchases on your credit cards while trying to pay them off.
• You have at least one credit card that is near the credit limit.
• You are occasionally late in making payments on bills, credit cards or other expenses.
• You use cash advances from your credit cards to pay other bills.
• You bounce checks or overdraw your bank accounts.
• You lie to friends or family about your spending and debt.

Telling seniors who must use credit to meet their living expenses to “spend less” is not helpful.

When an older adult is trying to get out from under credit card debt, the first step should be to call the credit card company. The company will usually negotiate with seniors for alternate payment plans, reduced interest rates or negotiated settlements. A senior citizen living on a fixed income, particularly social security and private retirement accounts, is typically judgment proof, with few assets a creditor can take.

The Consumer Credit Counseling Service (1-800-355-2227) offers a free consultation about credit status and overall budgeting. The Ohio Treasurer’s Office offers financial help and information online at www.yourmoneynowonline.org. Topics covered include credit and debt; financial planning; homeownership and foreclosure; fraud, theft and scams and saving.

Getting out from under credit card debt can seem overwhelming, but with effort and with the right help, it is possible.