Older Americans Increasingly Relying on Credit Cards for Basic Needs, Raising Financial Security Concerns

A recent report from AARP paints a concerning picture of the financial well-being of older Americans, revealing a significant number are using credit cards to cover essential living expenses. This reliance underscores the increasing strain that rising costs of food, housing, healthcare, and other necessities are placing on their financial stability and retirement security. The advocacy group emphasizes that these mounting expenses are eroding the ability of older adults to manage their debt effectively.

Indira Venkat, Senior Vice President of Research at AARP, highlights the core issue: “The kitchen-table economics of food, utilities, healthcare, all of those things are chipping away at individuals’ abilities to pay down debt.”

AARP’s data indicates that a substantial portion of older adults carries credit card debt. Specifically, 52% of adults aged 50 to 64 and 42% of those aged 65 to 74 report carrying a credit card balance. The survey, which included 4,846 older adults with credit card debt, reveals a growing trend that demands attention.

The implications of credit card debt are especially worrisome for individuals approaching retirement. They face a difficult trade-off: prioritizing debt repayment versus saving for their future. As Venkat explains, “They have to make hard choices: Do they pay down debt, or do they save money for retirement?” This dilemma can significantly impact their long-term financial security.

For those already in retirement, credit card debt poses an even greater challenge. Retirees typically live on a fixed income, making it difficult to manage and repay debt without making substantial sacrifices in other areas. Venkat notes that for this group, “it’s a real challenge to pay down debt without significant trade-offs.”

AARP’s findings are consistent with a growing body of research highlighting the issue of credit card debt among older Americans. A January report from LendingTree, a personal finance website, revealed that an overwhelming 97% of retirement-age adults carry non-mortgage debt, with an average balance of $11,349. Credit card debt was identified as the most prevalent form of debt among seniors, with 93% carrying a balance. This LendingTree study analyzed credit reports for seniors aged 66 to 71 in the 50 largest American cities.

Further confirming the trend, the 2024 Spending in Retirement survey from the Employee Benefit Research Institute, a non-profit organization, found that more than two-thirds of retirees with debt carry balances on their credit cards. The analysis also revealed that retirees are more likely to have credit card debt compared to other types of debt.

The prevalence of debt among older Americans has increased significantly over the past few decades. According to the 2022 Federal Reserve’s Survey of Consumer Finances, 53% of households aged 75 and older reported having debt, a substantial increase from 21% in 1989. This upward trend suggests a growing vulnerability among older Americans to financial instability.

Recognizing the growing need for solutions, AARP and other experts offer several strategies for managing and eliminating credit card debt in retirement:

• Aggressive Repayment Strategy: Experts emphasize the importance of moving beyond minimum payments. Minimum payments often cover only the interest and a small portion of the principal, prolonging the debt repayment process. Ted Rossman, a senior industry analyst at Bankrate, advises individuals to stop making new charges on the credit card and significantly increase their monthly payments.

• Calculate a Repayment Goal: Aim for a monthly payment equal to 5% of your gross income or double the minimum payment initially, maintaining that dollar amount as the balance decreases. This approach ensures that a significant portion of each payment is directed toward reducing the principal balance.

• Prioritize Card Repayment: If you have multiple credit cards, focus on paying off one card at a time. Experts suggest two primary approaches: targeting the card with the highest interest rate or the card with the smallest balance.

• Psychological Wins: Paying off the card with the smallest balance first can provide a quick sense of accomplishment and motivation to continue the debt repayment journey, according to Venkat. This strategy helps individuals stay engaged and committed to their financial goals.

• Minimize Interest Costs: Focusing on the card with the highest interest rate will minimize the overall interest paid over time, resulting in substantial savings. This is a strategically sound approach for long-term financial health.

• Explore Zero-APR Credit Cards: Consider transferring your existing credit card balance to a zero-APR credit card. These cards offer a promotional period, typically 15 to 21 months, during which no interest is charged on the transferred balance. This can be a powerful tool for accelerating debt repayment.

• Proceed with Caution: Be mindful that after the promotional period ends, the card company will begin charging interest on any remaining balance. Therefore, it’s crucial to develop a repayment plan to eliminate the debt before the promotional period expires.

• Negotiate a Lower Interest Rate: Contact your credit card provider and attempt to negotiate a lower interest rate. Given the high average credit card interest rates, there is potential to secure a more favorable rate. As Venkat suggests, the issuer may be willing to reward you with a lower rate, especially if you have a good payment history.

These findings and recommendations underscore the urgent need for both individual action and broader policy initiatives to address the financial challenges faced by older Americans. By taking proactive steps to manage and reduce credit card debt, and by advocating for policies that support financial security in retirement, we can help ensure a more stable and secure future for older adults.