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Got Credit Card Debt That’s Threatening To Push Back Your Retirement?

You’re not alone: Here are five tips to get it in check

More Americans are going to have to push back their retirement dates if their level of credit card debt continues to increase.

The latest report from CardHub, a credit card research tool, shows that credit card debt has risen seven of the past 10 quarters, and by the end of the year is on track to have household balances at their highest total since the Great Recession.

Credit card users are reverting to their bad habits when it comes to credit cards, says Jill Gonzalez, an analyst for CardHub talking about the credit card debt study. She says 2015 started out with promise because American consumers repaid almost $35 billion in credit card debt during the first quarter of the year. Unfortunately, in the second quarter, the nation racked up $32 billion in new balances.

“We’re not learning from our ways,” Gonzalez says. “We’re seeing the average indebted household balance at $7,800. That’s the most since the recession, and it’s about $600 below the tipping point we saw in 2008 as really having that unsustainable amount of debt. That was around $8,300 per household, and we see it creeping back up to that level, which is obviously very alarming.”

For those 50 and older and especially those in their 60s approaching their retirement, that credit card debt increase is troubling and has an impact, Gonzalez says. Many Baby Boomers are already relying on their adult or millennial children for help with their retirement planning.

“Last year, about a quarter people of people age 65 planned on retiring, but it ended up being only 10 percent of them actually retired,” Gonzalez says. “It’s not just because of credit card debt. It has to do with wage stagnation and a lot of people dipping into 401(k)s and IRAs during the recession, and now having to play catchup and not having as much money as they thought they would have in that nest egg. Not only are people staying in their jobs longer and pushing off retirement but those who did retire, a lot of them are having to go back to work.”

Gonzalez says that credit card debt is increasing because there’s more consumer confidence in the economy and people are eager to spend again. That’s translated into an increase in home buying and auto purchases as well, but the credit card increase is troubling. She said by the end of the year, the outstanding credit card debt during the holiday shopping season will surpass $900 billion, and those problems with credit cards will only hurt retirement planning.

“Retirement is something to be worried about because of how many people who haven’t been able to retire as soon as they like to,” Gonzalez says. “A lot of people are still recovering from the recession. Even though our economy is on the uptick, the people who went jobless for three or four years after 2008 definitely still have some work to do. For someone who had to file for bankruptcy, that’s still on your credit report. That’s something that might be affecting some of your credit card rates, which means it’s going to take more time to pay off your debt. All of those things relate to people who are planning to retire somewhat soon.”

Gonzalez’s advice: keep an eye on that and make sure your household balance doesn’t start creeping up to 2008 levels.


She offers five tips for people to manage their credit card debt:

No. 1. “Rank your expenses and start at No. 1 and go down. Once you get to the bottom of the list, that’s where you need to trim the fat. It’s difficult to spend within reason or plan savings without knowing how your monthly spending compares to your take-home as well as what it is allotted to. That’s why you should rank order your expenses – including debt payments, emergency fund contributions, and other savings.”

No. 2. “Build that emergency fund. A lot of people think about building a 401(k) and think about investing before they build that emergency fund. That should be liquid cash that you can use if you get laid off before retirement, and you have something to fall back on if you’re jobless from six months to a year. With a robust financial safety net, you’ll be less at the mercy of the economy and able to withstand a prolonged period of joblessness, should the need arise. Your goal should be to gradually save about a year’s worth of after-tax income through monthly contributions to an emergency account.”

No. 3. “Use what we call the snowball method. When you’re dealing with paying off amounts owed in order to become debt free at the least possible cost to you, you should attribute the majority of your monthly debt payments to your balance with the highest interest rate first. Make the minimum payment required with the rest.”

No. 4. Consolidate your credit cards the smart way with the “island” approach. “The island approach is a credit card strategy that involves using different cards for different types of transactions, as if they are a chain of distinct yet interrelated islands. For example, you could transfer your existing debt to a 0% credit card in order to reduce your monthly payments as well as get out of debt sooner and subsidize your ongoing spending with a rewards card or two that offer high earning rates in your biggest expense categories. This will enable you to get the best possible collection of terms as well as gain a better perspective on your spending and payment habits since finance charges on your everyday spending cards will signal a need to cut back.”

No. 5. Evaluate your job situation and see if you need to make a change to pay off all of your debt that you have – not only your rent and other monthly expenses, but your car loans and mortgages, too. In some cases, all the budgeting and planning in the world won’t be enough to solve your debt problems. You may therefore need to evaluate whether there are higher-paying opportunities out there for people with your background or if you’ll need to acquire some new skills in order to make yourself more marketable. This might require making a bit of an investment in yourself, but as long as you get a worthwhile return it’s money well spent.”



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