Seniors Caught in Credit Card Mess
Jan. 5, 2006 — -- It may seem as if Allen and Marlene Fox are enjoying the dream retirement. They have a beautiful home on a gorgeous lake in the Ozarks. And they wile away the hours sitting on their dock and watching the ducks.
But tranquility is elusive, especially when you know that the Foxes are $20,000 in debt.
"When we thought of retirement," Allen Fox said in a recent interview. "We thought it was going to be easy living for the rest of our lives."
In fact, they had no idea it would be this tough.
What whipsawed the Foxes is the same combination of factors that besets millions of newly retired Americans: Their once rock-solid pensions were cut or eliminated entirely. Others find that they still have kids to put through school. Others have endured steep reductions in their health insurance coverage. And then there is always the unexpected. And it's almost always expensive.
Allen Fox, 61, and a former telecommunications manager, got sick.
"I had not counted on open-heart surgery or nothing like that," he said, "and needing all these drugs every month."
When he retired in 1999, Allen's medical coverage for the couple came to about $20 a month. This year, after repeated cuts in benefits by his former employer, it stands at $570. He has subsequently switched to a less expensive plan, but that means less coverage too.
"I just couldn't afford it anymore so we had to start going into debt," he said. They had no choice. They had already depleted half of Allen's 401(k) and Marlene had gotten a job. But still they fell short.
So the Foxes did what millions of Americans do when they don't have the money to pay for something: They used their credit cards and went into debt -- big time.
It's a story that rings true to Chicago lawyer Jerome Lamet. His law offices are stacked floor to ceiling with tales of woe from seniors who have gone deeply into debt, mostly because of credit card use. His entire practice is devoted to helping people on fixed incomes dig their way out of a financial hole.
"When I first started [the practice] in 1998, I thought most older people pay their debts, their credit card debts," Lamet said. "I was wrong."
He said that each of his 6,100 clients wanted desperately to pay off debt, but they could not. He deals with people who basically have no assets beyond a pension and a government benefit such as Social Security. Nothing "seizable." The average client's monthly debt balance is about $30,000. And the average monthly income: $987.
Still, his advice is encouraging.
The credit card companies cannot garnish pensions or Social Security, which means his senior clients are basically "judgment proof," as Lamet puts it. Creditors have to back off.
"Under federal law, you're not to contact them, you're not to abuse them, you're not to telephone them 15 times a day. Just leave them alone," Lamet said.
Yes, he conceded, a big part of the problem is the undisciplined manner in which people use credit cards, but the card companies must share the blame.
"Over the last few years," he said, "the credit card industry was throwing plastic at people -- all kinds of people, including seniors." Including bankrupt seniors.
The companies "cancel the credit card," Lamet said, "and then within a month or two, the same people are solicited for a brand-new credit card."
That's what separates seniors of today from those, say, 40 years ago. Back then, there were unexpected expenses too. But there was a difference.
"Credit wasn't so available," said Sally Hurme, of the AARP. "Credit wasn't pushed into our mailboxes."
The credit card companies deny that they offer cards to people who cannot pay, but they don't seem very picky.
About 5 billion offers for cards are mailed out nationwide every year.
Catherine Williams, a financial adviser for Money Management International, said the results were predictable.
"Seniors simply reach into their wallet for their credit card because that's the difference between being able to have dinner, medicine, and the lights on," she said. She advises people to get rid of their credit cards and get on a serious plan of debt reduction.
The most recent data available show that credit card debt among people aged 55 to 64 rose 47 percent in the 1990s. Debt among those 65 and older increased an astounding 89 percent during the same period.
"This is not just happening to the worst cases," said Tamara Draut, director of the economic opportunity program at Demos, a nonpartisan, public policy organization. "This is becoming much more common and widespread and more of the ordinary face of older Americans than it was decades ago."
"We really need to start getting back to a conversation about health-care insurance, wages, retirement security," she said, "because households have run out of options at this point."
Allen Fox knows all too well about that.
"I didn't think that it would be this financially difficult to, ah, survive, I guess is the word," he said.
He also said he had been spending more time alone than he preferred. That's because his wife, Marlene, now works the night shift at Wal-Mart.
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