Credit card debt weighs heavily on pensioners

By Marianne Curphey

Much has been reported about money problems among the young -- yet rising numbers of older citizens are also struggling with credit card debt. The issue remains largely hidden, although a number of studies have shown that pensioners are disproportionately affected by rising living costs and fixed incomes that don't keep up with inflation. As a result, they are turning to credit to stay afloat.

"Mounting credit card debt is not just a problem for teenagers and young adults who overspend in maintaining a hectic lifestyle," says Philip Pearson, an independent financial adviser and director of the Southampton-based P&P Invest.

Here are some reasons the elderly are struggling -- and some ways they can recover their financial footing.

Numbers reveal senior citizens' struggles
Seniors are facing shrinking savings and growing debt, recent research has found. Pensioners over 75 have seen their savings halved in the past two years, according to insurance provider Aviva's spring 2012 Real Retirement report. Meanwhile, their average credit card debt is at 128% of their monthly income. pensioner-credit-card-debt

Age UK, meanwhile, uncovered growing apprehension in its May 2012 survey of people age 60 and over. One in five said they owed money on a mortgage, credit card or loan (compared with one in 10 last year), and 11% of those interviewed reported borrowing money to pay for housing. Nearly one-fifth (19%) said they were concerned about the amount of money they owed. And a third of those interviewed did not feel that the income from their pensions and savings was enough to cover a financially stable future.

Turning to credit in desperation
Pearson's experience is that older people may be relying on credit cards to make up a shortfall between their pension income and their living costs, says Pearson.

"Very often older people turn to a credit card to make up the difference between their income and expenditure at the end of each month," he says. "If your credit card statement shows an increasing balance each month, then alarm bells should start ringing in your head, as this is evidence that you are falling into debt by overspending."

Yet, while younger people may be able to get back on their feet by taking on more work, older people often can't fund a shortfall in income by taking on an extra job. Plus, being older means a promotion or salary increase, which could help to pay off debt, is less likely to happen.

"This is a potentially severe problem for the older generation, as many live on a fixed income and have little expectation of achieving additional income through work," Pearson says.

Confused about credit
Yvonne Goodwin, an independent financial adviser with Yvonne Goodwin Wealth Management, says most older pensioners are from the generation that believed "HP" (hire purchase -- the practice of paying for goods over time) is a "dirty word." If you couldn't afford something, you did without and saved up until you could. As a result, many older people may now suddenly find themselves with a credit card -- and no experience in using credit responsibly.

"They are unsure of how to operate it, don't know how to make payments in time," Goodwin says.

One of the biggest mistakes they make? Older generations, Goodwin says, might remember a time when they received a "red gas bill" -- the final notice sent after missed payments, but before service was shut off. With credit cards, however, there's no such warning before late payment penalties and credit dings kick in.

"It hits your credit rating as soon as you have missed a payment," Goodwin says.

A double whammy
One of the biggest problems for seniors with credit card debt is that it quickly eats up any interest from savings.

Pearson says that interest rates for savers are at historic lows. So even if they have been financially savvy and saved up for their retirement, older people are getting very little return on their deposit accounts.

"The cost to borrow through a credit card is around 18 times greater than the rate of interest available for cash savings," Pearson says. "Lifetime savings can quickly be eroded if used to service the cost of a large credit card debt."

Stopping the cycle of debt?

If you're a pensioner struggling with debt (or if your loved one is), here are some tips for digging out.

  1. Make a diary note each day of every penny spent over the course of a month.

    "Record all transactions including cash, direct debits and credit card," Pearson says. "This will highlight where your money is going and help you identify where savings can be made. You either need to cut back or cut out all unnecessary expenditure."

  2. If you're unable to live on your income, stop using credit cards. Contact the bank or card provider and explain the situation. They may be able to help you work out how to repay your debt within your means.

  3. If you can't earn an income (which many older people cannot do), staying afloat financially means getting the most out of your savings.

    Pearson says most deposit accounts provide a return rate less than inflation, so you need to shop for the best buys.

    "It is vital that you shop around to obtain the best rate of interest from your cash saving, in order to have any hope of achieving an income near inflation," he says. "This requires a regular review to ensure that the interest rate you are achieving is competitive."

  4. Don't be afraid to ask for help. Often it's the thrifty older generation that prides itself on good money management.

    "This attitude can stop you from seeking advice when you need it," Pearson says. "Speak to family and friends about the issue as soon as possible and in doing so the fear of debt will begin to reduce."

    Help is available from debt advice charities -- and maybe even from debtors.

    "Enlist the help of a trusted son or daughter, or even grandchild, or failing that a friend, who can make the necessary phone calls to whomever the debt is owed to and see what arrangements they can come to," Goodwin says.

    Non-profit organisations such as Consumer Credit Counselling Service may be able to negotiate on your behalf and help you come up with a payment plan.
  1. If all other options fail, bankruptcy might be an option. Yet it's an option older people often are unwilling to take, even if they no longer need pristine credit to get a mortgage or car loan.

    "Although older people might not need any future credit, they will feel the shame and humiliation associated with bankruptcy," Goodwin says.

    That's why family members and caregivers can help by being non-judgmental and patient.

    "It is always difficult [for older people] to deal with something new when nobody's bothered to explain the practicalities involved," says Goodwin.

    Reassure the older person that they were right to seek help for their debt issues, especially if it means they have managed to prevent debt spiralling out of control.

See related: Many UK families dangerously close to financial ruin, Can credit card debt make you sick?

Published: 13 August 2012