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American seniors rack up debt like never before

By: Christine Dugas
USA Today, August 24, 2002

Dee Rogers, 64, says she and husband Michael, 57, ran up about $63,000 in credit card bills — "just like a couple of spoiled kids." Now seeking help from a credit-counseling agency, she says, "We'll get by, but we'll both have to work until we're dried-up raisins."

That isn't the way most people would like to envision their golden years. But debt problems are only likely to become worse as the population ages, bankruptcy experts say. Unlike their parents, Americans retiring now are comfortable with credit cards and debt. They are more likely to use plastic to make up for declining income from savings and investments.

As a result, household debt for those 65 and older is skyrocketing — up 164% on average in eight years, to $20,302 in 2000, according to SRI Consulting Business Intelligence. That compares with a 92% increase for those younger than 65.

One national non-profit credit-counseling agency says more seniors are seeking help with ever-more-burdensome debt loads — about $30,000 on average, nearly double the average client's debt.

Most older Americans with debt problems are not spendthrifts, though. Medical emergencies, a major home repair or loans to children or grandchildren often are what push them over the edge.

"Older people tend to be used to living within their income until some crisis happens," says Tiff Worley, president of Auriton Solutions, a non-profit debt-counseling agency. Because many seniors own a home and have good credit records, they have a higher capacity for debt than younger people. That means debt problems can quickly mushroom.

The push into bankruptcy

Although older Americans account for a small proportion of total personal bankruptcy filings, they are the fastest-growing group in bankruptcy. About 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244% from 1991, according to the Consumer Bankruptcy Project, a study done at Harvard.

After $10,000 in credit card debt began to overwhelm her, Jennie Giannone, 72, finally filed for bankruptcy in March.

The retiree in Peabody, Mass., lives on $900 a month in Social Security and some extra cash she makes taking care of an elderly woman. "I can't take the pressure of the bills," she says.

Nearly half of the elderly people who end up in bankruptcy say that they filed because of a medical reason, the Harvard study found.

After four surgeries within three years, Duane Allen, 68, and his wife, Linda, had racked up about $15,000 in medical bills. Unable to pay them outright, they charged them. Soon, they were treading water and sought help from a debt-counseling center.

As Duane Allen puts it: "We had health and medical problems and put the bills on our credit cards. Pretty soon, it got the best of us." The Allens not only sought help from credit counselors, but they sold their home and bought a less-expensive mobile home in Yucaipa, Calif. "I'm old enough to know better," he says. "Once you get involved with credit cards, they've got you."

It doesn't always take a medical emergency to precipitate a debt crisis.

Out-of-pocket health care expenses for seniors increased nearly 50% from 1999 to 2001, according to a report by the Commonwealth Fund. The costs are likely to go up as more employers eliminate retiree health benefits, which typically provide supplemental drug coverage.

At the same time, many managed care companies are cutting prescription coverage from Medigap policies. That forces many elderly Americans to go without medications or pay for them with a credit card.

"Before you know it, they have a large amount of debt," says Sandra Vickery, director of the Bourne Council on Aging in Bourne, Mass.

The desire to help family members also can trigger financial problems. Seniors "often need someone to tell them that they can't continue to send their son money every month," Worley says.

Even worse, some family members take advantage of elderly grandparents, aunts or uncles. "There are a lot of people who exploit the elderly," says Valerie Egzibher, executive director of Legal Services for the Elderly in Charlotte. "They get power of attorney and clean out the elderly person's bank accounts."

For other seniors, loneliness and boredom can cause them to seek solace in gambling, sometimes sending them spiraling into debt. Five years ago, the Council on Compulsive Gambling of New Jersey set up a senior outreach program because it found that about 10% of its callers were people 55 and older who had gambling problems.

Ed Looney, the council's executive director, says one 72-year-old woman told him that she had lost $300,000 on card games and slot machines since 1980. "It's a sad state of affairs when someone works all their lives and then what they worked so hard for is gone," he says.

Although there is the perception that many older Americans are affluent, 44% of retirees say Social Security was their primary source of income this year, up from 38% in 2000, according to an annual survey by the Employee Benefit Research Institute.

Unplanned expenses

When seniors live on a fixed income, it's tough to juggle an unexpected expenditure. Stella Barreras, 70, of Cottonwood, Ariz., says her problems started when she needed to dig a deeper well on her property. The $1,500 bill had to be paid upfront, and that depleted most of her cash reserve.

As a result, Barreras and her husband, Fabian, who live on a modest income, had trouble keeping up with other bills. They had to wait until they received their checks from Social Security before they could make credit card payments.

"We would get paid on the third of the month, but if the credit card bill had a different due date, then we were late," she says. Soon, late fees and penalty interest rates caused their credit card balance to balloon to about $27,000.

Senior citizens with credit card debt used to be an exception. In 1992, 18.6% of Americans older than 65 had an outstanding balance on a credit card, according to SRI Consulting Business Intelligence. By 2000, that had jumped to 46%.

"There has been a sea change in the fiscal conduct of seniors," says Leonard Raymond, executive director of Homeowner Options for Massachusetts Elders (HOME), a non-profit housing assistance group based in Boston. "When we started the program 18 years ago, credit cards were a non-issue. Today, our clients have an average credit card debt of $8,000. But we also see people with $30,000, $40,000, $60,000. One client had $202,000 in credit card debt."

Home-equity loans and second mortgages also are on the rise among elderly Americans. "A lot of seniors are house-poor," Vickery says. Their homes have appreciated in value, in many cases causing property taxes to become a large financial burden.

These older homeowners are frequently targeted by creditors who try to sell them a home-equity loan. "Property tax information is public," Raymond says. "It's easy to look up who's behind on their taxes and offer them a loan." It becomes a problem when a predatory lender persuades them to take out a high-interest loan that exceeds their income.

For many senior citizens, their only major asset is their home. It becomes a de facto pension, says John Pottow, a bankruptcy expert and recently appointed law professor at the University of Michigan. That's a problem if they file for bankruptcy. Although pensions are a protected asset, in most states only a small amount of home equity is protected in bankruptcy. So if the value of the equity exceeds the state exemption, then a person who files for Chapter 7 bankruptcy will lose their home.

Seniors don't know their rights

Older Americans often compound their debt problems. Many are too embarrassed or too proud to seek help when financial problems arise. "We know that 15% of all senior homeowners eligible for property tax relief in Massachusetts don't take advantage of it," Raymond says. "It's a matter or pride, privacy, confusion or they just don't know about the program."

Seniors are often not savvy about credit and don't know their rights when they are contacted by creditors or bill collectors. They become nervous when bill collectors start badgering them. "We've found that any call from a bill collector will incapacitate them for two hours after the call," Worley says.

Though debt problems among the elderly are rising, bankruptcy is usually a last resort. "Elders do other things to avoid bankruptcy," Vickery says. They may take out a loan or go to a food pantry in an effort to get by, she says.

To help out, Bourne has set aside areas on Cape Cod where senior citizens can go shell fishing to supplement their food budget with oysters and clams.

In the end, debt problems take an emotional toll, not just a financial toll, on older Americans who often suffer in silence. "They don't sleep at night," Egzibher says. "Some cry all the time. They don't tell their families. They say they can't bear to ask for charity."

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