Seniors Struggle to Overcome Debt

When one thinks about retirement they often imagine a relaxing time in their lives maybe spent on a golf course, in a spa, or lounging in their Florida condo drinking a perfectly balanced Arnold Palmer. Unfortunately for many seniors, this picturesque idea of their retirement is just that, an idea. That’s because more and more seniors are struggling with debt and therefore have to work longer. Those lucky enough to gain employment often have to work for fewer hours and/or earn a lower wage then what they were previously making.

According to the Federal Reserve data crunched by the Employee Benefit Research Institute, the average debt held by senior citizens has skyrocketed to $50,000 in 2010, up 83% since 2001. Much of this is due to an increase in housing-related debt, not because older Americans bought homes, but because they borrowed big against their houses. They either took out home equity loans, refinanced and took out cash, or extended the term of their mortgages. In 2010, 45% of homeowners over the age of 62 had mortgage debt which was up 21% since 1992.

Even credit card debt has also become more prevalent among seniors with about one-third of them using their cards for basic living expenses. A study of low and middle income households by the New York think tank Demos last year found that credit card debt had risen 26% among those 65 and older since 2005. The respondents in that age group reported an average of $4,000 of credit card debt for medical expenses alone.

There are some tips for seniors struggling to overcome their mounting debt. For example, those with high interest credit card debt should consider a reverse mortgage. With reverse mortgages, home equity is converted into cash, which is received on a monthly basis, in a one-time lump sum payment or as a credit line to use whenever needed. The appeal is that, unlike any other type of home equity loan or refinancing maneuver, the money received through a reverse mortgage doesn’t need to be paid back as long as the owner continues to live in the house. For many cash-strapped seniors, this creates a source of income that could last the rest of their lives.