How you view credit cards says a lot about your spending

Once upon a time, our forebears mellowed in rocking chairs, “minded” the grandkids, and eased into passive roles in the households of their kids. Today’s seniors want more control in our golden years. Many of us are paying a high price for that control.

American consumer debt was staggering even before the COVID-19 pandemic. Credit card debt alone exceeded $870 billion in 2019, according to CNBC News. For most of the last decade, the largest credit card balances have been held by people in their 50s.

Many seniors now carry credit card debt into retirement. Managing cash flow with credit cards may work when we’re working, but in retirement, their debt becomes unmanageable. AARP’s Public Policy Institute reveals that half of those over 50 hold medical debt on their credit cards while a third reported using credit cards to finance daily expenses. Some use credit cards to finance children or grandchildren’s education.

Notwithstanding seniors’ disproportionate medical expenses, most credit card debt is the result of discretionary spending. Professor Stephanie M. Tully at Stanford University’s Graduate School of Business and her corroborators found a wide range in attitudes about consumer debt. Those who view borrowed money such as credit card debt as their own money were more likely to spend it freely. On the other end of the spectrum, those who understand credit card debt as loans spend it less freely.

“What we found is that people’s feelings about the ownership of money can predict their interest in taking on debt,” Tully said. “It seems some people are fine with going into debt as long as it doesn’t feel like debt.”

Despite the many ways seniors can slide into holding a credit card balance, the way out is relatively linear. Moreover, it is paved with the wisdom of the ages.

1. Create a budget. If this seems like a punishment, reframe it to yourself as a pathway to knowledge and freedom.
2. Adjust your lifestyle so that your income covers all your regular expenses plus allocations to periodic expenses, emergencies and savings. A man is rich whose income is larger than his expenses, and he is poor if his expenses are greater than his income.
3. Prioritize debts. If you are working to pay off several loans, order them by interest rate and pay off the highest rate ones first, all else being equal.
4. Pay your bills upon arrival to avoid late fees and carrying charges. In today’s low interest rate environment there is no excuse to do otherwise.
5. Get help if needed. NerdWallet.com outlines sources for low cost or free help by nonprofit credit counselors and creditor forbearance programs. “It’s much easier to work with them than a debt collector,” said Bruce McClary, a spokesperson for National Foundation for Credit Counseling (NFCC). “Many creditors can find a way to get you into a product with lower payments and more manageable terms.”
6. If necessary, dip into your retirement fund, but not until after you have completed your budgeting homework. Before tapping into retirement funds you’ll want to be able to answer two questions with a resounding “Yes.”

          a. After paying off the debt, does your income cover all your expenses as outlined above?

          b. Will your reduced retirement accounts still support a decent retirement, allotting for increased senior expenses such as medical costs? Face the mirror and ask your future self: “Is this a good idea?”

Credit cards are not a link to your own money but a slippery way to increase debt. If this doesn’t compute for you, your better option is to use debit cards, which draw upon your cash accounts rather than creating debt.

“There are times when debt can be beneficial,” Tully said. “You invest in a home or higher education. But the choice to go into debt over discretionary purchases isn’t a rational calculation, and for many it’s suboptimal.”

Debt for any but the direst circumstances is definitely suboptimal for seniors. Our rocking-chair forbears would say “rock on!” to that.

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