There are few things more dangerous to financial peace of mind than out-of-control debt. While that axiom might be true for most of us, it’s especially true for U.S. seniors, the majority of whom enter retirement in precarious financial shape to begin with. Between mortgage payments, car payments, consumer credit, and even student loans, older Americans who may be barely scraping by are often one illness or family crisis away from fiscal catastrophe.

Just a few weeks back, we read this sobering article about senior debt written by NextAvenue editor Mark Stein. He warns that, for those aged 60 and over, growing debt will make it harder to save for retirement, and will increase the danger of dipping into savings sooner than anticipated. The result: a downward spiral in which the struggle to make ends meet only grows worse.

Senior Debt is the Highest in U.S. History

Stein begins with this sobering statement: “By almost any measure, more Americans are in or are rapidly approaching retirement with more debt than at any time in the country’s history. At the end of the most recent quarter, people aged 70 and over owed a total of $1.63 trillion, according to data from the New York Federal Reserve Bank/Equifax.”

This, he says, is well over twice as much debt as people aged 70 and over had a decade ago, even when adjusted for inflation and the greater number of people living into their 70s today. “On average, Americans aged 60 and over owe $55,197; a decade ago, the figure was $28,161,” he writes. “The debts of only those people aged 70 and over exceed the total amount of all Social Security benefits that will be paid out this year,” which totals about $1.5 trillion.

So, Stein asks: are these big numbers a big problem? And if so, how?

More Debt, Meager Savings: A Disaster in the Making

Jessica Johnston, senior director of the National Council on Aging’s Center for Economic Well-Being, says she sees rising debt as evidence that “older adults are struggling to make ends meet.”

This has ramifications for retirement savings. Stein writes, “Half of people aged 65 and over have not saved as much as they need to retire in comfort; almost one-third have saved nothing at all. At the same time, people live longer, requiring them to stretch their savings over more years or exhausting their reserves when age-related medical conditions develop.”

Debt No Longer Carries a Social Stigma

Social attitudes about debt play a role here. Being in debt no longer carries the same stigma as it would have for people who lived through the Great Depression. Johnston says that public attitudes about debt are “surprisingly different than what we saw in the past.”

These days, debt means a few different things. “Having debt . . . does not always signal financial fragility because debt can be used for various purposes,” Boston College researchers Anqi Chen, Siyan Liu and Alicia H. Munnell wrote in their article, “What Are the Implications of Rising Debt for Older Americans?” published by the Center for Retirement Research.

“For example, households that take out a low-interest mortgage to buy a home, which typically appreciates in value, are likely making a savvy choice. In contrast,” they add, “households that carry unpaid credit card balances could see their debt snowball, leading to financial distress.”

A Debt Snowball Can Trap High-Interest Borrowers

“Snowballing occurs when a person carries a large balance on a card with an interest rate so high that the biggest monthly payment that they can muster is not enough to pay even all the interest on last month’s balance,” Stein explains. “The unpaid interest is added to the total amount due and accrues interest of its own.”

But whether debt is truly snowballing or simply rising steadily, more debt burdens mean higher debt payments, which leaves less money for essentials like food, housing, healthcare, and medications.

It also may make debtors less able to absorb the financial shock of a health crisis, the death of a spouse or a natural disaster, Barbara Butrica of the Urban League and Stipica Mudrazija, an assistant professor at the University of Washington, wrote in Financial Security at Older Ages, also published by the Center for Retirement Research: “Lacking the financial wherewithal to survive such a jolt leaves them open to eviction, bankruptcy and other catastrophic outcomes.”

Red Flag: Using Credit to Pay for Daily Expenses

“People 70-plus is a population that has seen a tremendous growth in credit card debt in contrast to general debt,” says Hector Ortiz, Senior Policy Analyst in the Office for Older Americans at the Consumer Financial Protection Bureau. “There’s a relationship between debt and retirement security when people tell us their income is below their expenses.”

Ortiz observes that many people who carry debt have little trouble generating enough liquidity – available cash – to keep their accounts current. But that’s not always true of those burdened by growing credit card balances, especially when cards are used for routine costs like groceries.

“There,” says Ortiz, “you do see an association (between debt and liquidity). So, clearly, credit card balances are people accruing credit card debt to meet day to day expenses and potentially emergency expenses.”

Major Differences Between Secured and Unsecured Debt

Stein writes, “Secured debt — mortgages, generally — are where economists see one of the lowest rates of problems. But even mortgages can become an area of concern if people have multiple debts — say, a car loan, student loan, mortgage and on top of that some level of credit card debt.”

Referring to economic tools used to gauge consumers’ creditworthiness, Ortiz adds, “Those are where you see higher payment-to-income ratios, higher leverage ratios and a higher percentage of debt to wealth in general. Those are the indicators that tell us that this is a population that is struggling.”

Chen, Liu and Munnell at Boston College suggest classifying older households with debt as “low risk” or “high risk” of financial distress. This would allow them to see which group accounts for more of the growth in the debts of older Americans, and the final step would be to identify different types of high-risk households. This would give policymakers a clearer picture and help them draft targeted ways to help.

Research Shows Half of Seniors Can’t Afford the Basics

“Help is definitely required,” Stein writes. “Based on the Elder Index, a cost-of-living tool developed at the Gerontology Institute at the University of Massachusetts Boston, almost half of Americans aged 60 and older don’t have enough income to afford basic necessities.”

Higher debt burdens mean higher monthly expenses, leaving less for the essentials.  

And the consequences can be harmful. Johnston says that some in debt cope by cutting back in other areas, such as their prescription drugs, meals, or visits to the doctor. They use their credit cards to pay for groceries and other routine expenses. “So, you put it on a card and tell yourself, ‘Just this once’,” she said. “But nothing changes, and it happens the next month and the month after that and the month after that.”

Stein concludes, “Determining if an individual has a dangerous amount of debt — and drafting a plan to shed that debt — may require a professional financial counselor. Free counseling is available through the National Foundation for Credit Counseling in Washington, D.C.”

Rajiv Nagaich – Your Retirement Planning Coach and Guide

The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. Retirement: Dream or Disaster joins Rajiv’s ground-breaking DVD series and workbook, Master Your Future, as a powerful planning tool in your retirement toolbox. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

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(originally reported at www.nextavenue.org)