Debt in retirement is a real problem

There's a personal debt crisis coming. I see it in the posts on the "Ask Terry " section of my website, TerrySavage.com. These stories go beyond the frightening national statistics to reveal the human costs. Especially for seniors.

Americans are now carrying more than $1 trillion in credit-card debt — a new record. And the average interest rate they're paying is just over 21%.

That's a horrendous burden — especially for those who are retired on a fixed income and charging more each month just to pay for essentials. Here's what it looks like — directly from an AskT erry post this week:

"I'm 71 and retired. Through my working years I had no problem paying my creditors. Now being on a limited income, I am under great financial stress that is affecting my emotional health. I know I have made some bad financial decisions in my life. My 401(k) is now depleted, and I'm living on Social Security and a very small pension. I just don't know what to do. I don't think I can even afford a credit repayment program. I'm considering bankruptcy. Any suggestions you can give me are greatly appreciated. This stress is making me ill."

That is not what retirement is supposed to be. But, sadly, too many seniors find themselves in the same position. Before the pandemic, a study by the Consumer Bankruptcy Project found the rate of senior bankruptcy rates tripled between 1991 and 2018.

The stimulus checks sent out during the pandemic helped alleviate this problem. Still, according to Debt.org, those 55 and older account for 20% of all bankruptcy filings. And inflation continues to take its toll on the cost of food, energy and housing. If you, your parents or your neighbors find themselves in this position, there are ways to get help without paying out your remaining savings in fees.

Getting help

The National Foundation for Credit Counseling (800-3882227 or NFCC.org) is the one place you can turn for trusted help that is either free or very low cost. Calling the toll-free number will automatically connect you to the nearest member agency. They are experienced and kind and nonjudgmental in my experience of writing about and talking with them over many years.

They will go over your complete financial picture and give you unbiased counseling, even though they are, in part, funded by the credit-card industry (out of conscience, I think). If necessary, they will refer you to a bankruptcy attorney you can trust. But they can also suggest other options, such as a repayment program, where they contact your creditors and get them agree to a lower monthly payment and lower interest. You send one monthly check to them, and they pay your creditors.

Unlike those "credit repair" companies you see in advertisements, the NFCC is making arrangements in advance, so you avoid collections and garnishments. Those "credit repair" companies ultimately take a cut of the savings, which is how they make money to pay for their ads. So, make sure you are dealing with an NFCC member agency.

Earning and spending

Today's seniors were raised to regard bankruptcy as a stigma. Sometimes it is the last but best resort. However, it could cost you your home or other treasured possessions. Seriously consider the alternatives. As you know, it's all about spending less — or earning more.

The first question to ask yourself, though retired, is how you could possibly earn more money. Be creative. This is not about going back to your old, full-time job. But perhaps you could consult on a part-time basis. Perhaps you could become an after-school student tutor, helping a child with anything from math to music. Or maybe you could drive others in your neighborhood to doctors visits or grocery shopping. Every little bit of added income will help. You've likely already cut back on all but the most necessary spending. But have you considered the free resources available to seniors in your area — everything from "food stamps" to energy assistance? My recent column on finding those resources is posted at TerrySavage.com. Or contact your area Council on Aging.

Every state has resources that could help solve your budget problems.

If you're a senior, you are not alone in having debt problems. Only the federal government can "print" the money to solve its overspending situation. So don't stew in silence. Trusted help is available. And that's The Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Email her at [email protected].