When 93-year-old Clara Watkins’ air conditioner broke down in a 100-degree Texas heat wave three years ago, she obtained a home equity loan to purchase a new unit. At the same time, says her 58-year-old granddaughter Sheridan Walker, the septic tank needed to be replaced, as did her grandmother’s 19-year-old car.
“It was all things that were needed,” says Walker, who has taken care of her grandmother for the past 10 years. “Part of the home equity loan was also paying off previous credit card debt,” she added.
The two women live on combined pension and Social Security receipts totaling nearly $3,000, but with more than $160,000 in debt and a $1,400 payment on the home equity loan, they are part of a growing group of older Americans struggling to manage their debt.
Watkins enlisted the services of a debt relief company to help, but her granddaughter says the company is charging her $5,000 in fees before they will start sending anything to her creditors. Meanwhile her costs continue to rise as she tries to meet her basic needs.
“Seniors typically go into debt on things they cannot avoid spending money on,” says Joel Ohman, a Tampa, Fla.-based certified financial planner and founder of the credit card comparison website, CreditCardChaser.com. “While people who are in their 20s may charge things frivolously, seniors are purchasing things they need.”
The Plastic Net Survey, conducted by the non-partisan public policy research organization Demos, showed that the average indebtedness of households headed by those 65 and older in 2008 rose to $10,235 from $9,827 in 2005. Of that, nearly $4,000 was attributed to medical debt.
To compound the problem, much of that debt is held on credit cards that charge a high amount of interest. According to a survey of consumer finances conducted by the Federal Reserve in 2009, 37% of households headed by someone between 65 and 74 now carry credit card debt.