Is Grandpa drowning in debt?

By Bankrate.com

Rocketing living expenses, shrinking savings and easy access to high-cost credit cards are pushing debt levels higher than ever for America's seniors. An increasing number of the nation's elders are putting their homes, retirement savings and livelihoods at risk to pay the bills.

At the same time, many seniors are unaware of financial strategies or of federal and state laws that can help protect their assets as they go through the process of paying off high debts or -- in the worst-case scenario -- filing for bankruptcy. As a result, these vulnerable citizens make missteps that could cost them dearly.

That's the consensus among experts who say the Madison Avenue image of retirees -- healthy, prosperous folks playing golf at the country club -- is out of step with reality for many seniors.

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"Debt is growing across the country, and it's not avoiding older persons," says Sally Hurme, the senior project editor for financial studies at AARP. Numerous studies support her claim.

Some grim statistics:

• One-third of retirees in a recent poll by AARP described their current personal debt levels as a problem, and 7% called it a "major" problem.

• The number of people age 65 and older who filed for bankruptcy jumped 213% between 1992 and 2001, outpacing all other age groups, one study said. Health-care costs drove the trend.

• Debt levels for households headed by someone 75 and older averaged $20,234 in 2004, a 160% jump from 1992, the Employee Benefits Research Institute reported.

Nelda Taylor's story

A debilitating accident and family illness proved to be the one-two punch that wiped out Nelda Taylor's life savings.

The 67-year-old Arlington, Texas, resident had saved $68,000, but when Taylor was injured on her last job driving trucks, her plans for a secure retirement skidded out of control. With three herniated discs, Taylor was unable to work for two years. It wasn't long before bills became unmanageable. Then Taylor's sister had a stroke.

"I went through all my savings. I started charging on my credit cards. I started using credit cards to pay credit cards. I filed for bankruptcy," says Taylor, methodically ticking off her financial slide before she sought help at a credit-counseling service.

Today, Taylor works part time at a storage company. Her paycheck enables her to chip away at $50,000 in credit card bills on a payment plan designed by her credit counselor. Morale-boosting treats are rare.

"I'll meet friends at a restaurant and get a cup of tea. But I'll go home and fix a meal 'cause I can't afford to eat out," she says. "My friends tell me 'I'll buy your dinner.' But I just can't do that. I'd love to be able to give back, but I just can't. So I don't let them."

Taylor's story isn't unique. One-fourth of people 65 and older on Medicare and 13% of seniors with other forms of health coverage have trouble paying medical bills, AARP reports.

"Debt for older people isn't due to irresponsibility. It's due to medical costs, increased gasoline prices, increased property taxes," says AARP's Hurme. "The 65-plus individuals are not the ones who have come into retirement with big credit card debt. They're using their credit card to buy groceries. They just can't make ends meet."

Credit cards a last-ditch resource

Often called the "plastic safety net," credit cards have become the last-ditch resource for plenty of seniors struggling to pay for the basics. But it's a safety net frequently fraught with hidden traps and pricey fees that quickly push bills out of reach for the elderly, says Cathy McConnell, a lawyer and executive director of the West Virginia Senior Legal Aid.

McConnell contends that pressure for seniors to use plastic is overwhelming.

"At 60, 70 and 80 years old, these seniors are of a generation that values honesty and being good for their word. These are people who, early in life, may have never used credit or if they borrowed, they may have done so with a handshake with their local banker," says McConnell.

McConnell's clients often jeopardize their well-being by paying as much as they can to creditors without leaving enough for utilities and other necessities. To pay card balances, others deplete life savings or liquidate retirement assets they'll need in the future.

Many risk the roof over their head. These days, eight out of 10 seniors over age 65 own their own homes, U.S. census figures show. "There's substantial pressure among older homeowners to tap into that equity to pay medical costs and get by," says Hurme.

Mortgage balances a future problem

Meanwhile, mortgages -- whether they've been refinanced or not -- may become a growing financial problem for those heading into retirement. Nearly 60% of households headed by someone age 55 to 64 had outstanding mortgage balances in 2001, the Joint Center on Housing Studies at Harvard University found. That's up from 46% in 1989.

Julie Nagle-Panizo of Skokie, Ill., feels the pinch of an outstanding mortgage balance. The 66-year-old airline executive was laid off in October 2006 when her sales and marketing department at Japan Airlines was relocated. She had been with the company for 33 years. She and her husband had refinanced their home to help pay for their children's educations. Now they have 11 years of a 30-year mortgage to pay off.

"I was hoping to work longer so I could pay more toward the principal," she says. "That's not happening."

She says she'll take a lower salary and do any job to raise extra funds for the mortgage. She has marketing and financial know-how, a bachelor's degree and a track record of being a dedicated employee.

In the 18 months she's looked for work, she hasn't received a single job offer.

Continued: Resources for seniors

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