Credit card debt among retirees has increased a lot since the last few years and it’s alarming, according to research!
More retirees are now carrying credit card debt into their later years, creating serious financial challenges, especially for those with limited budgets. According to the Employee Benefit Research Institute (EBRI), around 68% of retirees had credit card debt in 2024 – a major increase from 40% in 2022 and 43% in 2020. EBRI polled 3,661 retirees aged 62 to 75 in the summer of 2024.
“It’s alarming for retirees living on a fixed income”, said Bridget Bearden, EBRI’s research strategist who examined the survey results.
Inflation is the main factor driving retirees’ credit card use, Bearden said. However, it’s not only retirees who are affected. A Bankrate survey revealed that about 2 in 5 credit card users have reached or nearly reached their credit limit since early 2022, due to inflation and rising interest rates.
The rapid rise in consumer prices, due to pandemic-era supply-and-demand shocks, has created financial pressure. Higher living costs mean retirees may be dedicating more of their Social Security income to essentials like rent, leaving little for other expenses and increasing reliance on credit cards, Bearden noted.
Although Social Security provides an annual cost-of-living adjustment, these adjustments haven’t fully compensated for inflation. As a result, beneficiaries have lost approximately 20% of their purchasing power since 2010, according to the Senior Citizens League.
Due to high interest rates, credit card has become a particularly “expensive form of borrowing”, according to Federal Reserve Bank of St. Louis researchers. In 2024, interest rates on credit card balances reached an average of 23,37%, compared to 17,14% in 2019. These rates have increased as the Federal Reserve raised interest rates to control inflation. By November 2023, households with credit card debt were paying an average of $106 monthly in interest alone, according to the Federal Reserve Bank of St. Louis.
Tips To Avoid Going Into Credit Card Debt
1. Reducing Expenses
Financial advisors recommend that retirees take a close look at their spending to reduce debt. Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners, suggests retirees start by identifying why they incurred debt. If it’s due to essential expenses or unexpected costs, it may be time to make some lifestyle adjustments, she added. Here are some tips McClanahan offered for cutting expenses:
- Eliminating unnecessary subscriptions or app fees;
- Conducting an energy audit to save on utility costs;
- Cooking at home more often to reduce dining expenses.
For larger changes, retirees might consider relocating to a lower-cost area, according to Ted Jenkin, a certified financial planner and founder of oXYGen Financial. Any savings from these adjustments can go toward paying down credit card debt, McClanahan noted.
2. Increasing Income
McClanahan also recommends that retirees consider part-time work to boost their income. Additionally, financial advisors suggest selling valuable items, like collectibles or furniture, through platforms like Facebook Marketplace or Craigslist. Winnie Sun, co-founder of Sun Group Wealth Partners, noted that while retirees often keep these items to pass down, family members might prefer that their loved ones be debt-free. For additional assistance, retirees can reach out to nonprofit credit counseling agencies, such as American Consumer Credit Counseling or the National Foundation for Credit Counseling.
3. Reducing Interest Rates
Another strategy for managing debt is to lower interest rates. Retirees can try negotiating a lower rate with their credit card provider or transfer their balance to a card with a 0% introductory interest rate, Sun suggested.
They might also consider consolidating credit card debt with a home equity line of credit (HELOC), which typically offers lower interest rates, she added. However, it’s important to work with a financial advisor to see if this option is right, as a HELOC could be risky if spending habits don’t change. Another possible approach is to evaluate if withdrawing from a retirement account would cost less in taxes than paying high-interest rates on credit card debt, according to Jenkin.
“It might make sense to let the tax tail wag the dog, pay the taxes, and then pay off your debt, especially if you are at a 20%-plus interest rate”, Jenkin said.