There’s a very good chance that this holiday season is going to bring more and more retirees into debt. Did you know that the median total consumer debt of households headed by someone 65 or older in 2016 ($31,300) was 2 ½ times what it was in 2001. And 60% of 65+ households carried debt in 2016, up markedly from about 42% in 1992.
This debt load will make retirees “increasingly vulnerable” to an economic downturn. And we all know an economic downturn is coming. Probably sooner than we realize. The only thing holding up the economy right now is consumer spending. Most of that spending is done through credit. With borrowing rates the lowest they have ever been (well, almost) it’s been easier to borrow money than earn it. It’s been easier to pay for things at 3% to 16% interest rates (over time) with 5% cash back reward programs than working long hours, at low pay to buy these things for cash.
Most retirees, I’m sad to say, have been using their credit cards to get them through the month. I’m no exception. Only difference is I’ve been able to pay my credit card bill, in full, at the end of the month, so I haven’t paid any interest fees. Yet. I, like most of my fellow retirees, are feeling a pinch probably due to rising housing costs and rising medical bills. Retirees have found it becoming just a tiny bit harder and harder to pay that bill, in full, at the end of the month. I’ve been finding it a tad harder also which is making me wonder: how am I doing?
“The debt from a credit card is much more stressful to an older adult than debt from a mortgage, first mortgages seem associated with the least amount of stress…into retirement years.” (click here for info resource)
The reason credit card debt is the most stressful, is that collection strategies can be more aggressive than for other types of debt if card holders don’t make their payments.
“If you’re struggling to pay your credit card and are unable to make a payment, your credit line could be frozen. And if you’re depending on it to buy your groceries and pay for your medications, your credit line being frozen can result in pretty immediate negative effects. The stress can be overwhelming at a time when you can afford stress the least.”
If you miss a car payment, that won’t necessarily keep you from being able to purchase essentials.
If you are a retiree, and you are using your credit cards to make ends meet: stop! Take a step back and see what you are spending your money on. Is it a necessity? Is it a need? Is it a want? or are you being bamboozled, as I was, being coerced into buying Christmas/Holiday gifts?
I took a step back and saw that hubby and I were spending too much on food, too much on our dog, too much on ‘things for the house’ and way too much on Christmas gifts. We spent way too much money on Thanksgiving dinner and the related morning breakfast and lunch the very next day. We spent too much money getting guest bedrooms in order or spiffing up the house. And for what? A 36 hour visit from family? Who won’t remember what our home looked like nor appreciate the effort taken to make them as comfortable as possible? Where will these guests be in 5 or 10 or 20 years when we retirees run out of money or drown ourselves in debt?
It isn’t just retirees or everyday people who are taking on more and more debt. Companies, businesses and corporations are piling on the debt too. And why not? Debt is cheap nowadays. But what are these business entities doing with the extra borrowed cash they have on hand? Are they re-investing it into their companies? Are they investing in Research & Development (R&D)? Are they hiring more people? Training more people? Diversifying into other avenues of income?
I hate to break this news to you BUT manufacturing in this country is already in a recession (click here to read more). Manufacturing has been in a recession for most of 2019. And it doesn’t look like it is going to get any better in 2020. With manufacturing down, use your brain….think….what do you think is going to happen to these companies, who have piled on the debt, despite the low rates of 3% to 2%, and now have nothing to manufacture, nothing to sell yet they still have to pay back their loans? What is going to happen to YOU if you work for one of these companies that might go under? Do you understand now why it is so important for you NOT to incur any more credit card or consumer debt?
Largely cited is the uncertain trade picture, weak global growth and U.S. political developments on the economic outlook. It’s a laundry list of ‘shocks’ that are coming one after the other: global growth hiccups,Boeing Max fiasco, IPO market fizzle, GM strike, election cycle swoon and getting compounded by the impeachment drama.
I haven’t put away my credit cards because I do NEED them to buy groceries and gas and essentials to get me to the end of the month when all my passive income comes in. What I have done, however, is cut back drastically on what I have been buying. And if I am doing that, then other consumers will be doing that and that is how a recession starts: when the consumer cuts back, the economy slows and a recession sets in. Once this holiday season is over and people open up their January credit card bills, the sh$$t is going to hit the fan and it is NOT going to be a pretty sight.
Up to you.
Put those credit cards away now and to heck with those rewards and cash back bonuses.
Thinking of buying a car this Christmas or in the very near future? Look at how middle class Americans are being priced out of a basic utility. The manufacturers load up vehicles today with every un-necessary bell and whistle just to pry as much cash out of your wallet: