Editorial Policy

Don't let credit card debt steal your golden years

Eva Norlyk Smith Ph.D.

November 19, 2013

QHi Eva,

I have a problem with too much credit card debt. I have inquired about getting a loan several places, but I have too much debt. My debt is all in good standing, and I always pay more than minimum.

I have three huge credit card balances I want to get off my back, with interest rates at 18.99 percent, 12.99 percent and 17.99 percent. I have negotiated with the banks, but always get the same answer: “Not at this time.” My income is Social Security and other income I inherited form my mother, but my problem was helping children when needed.

Anyway, HELP! My debt is close to $30,000. I should not be like this at age 78. Hooray for the golden years! — Dana

ADear Dana,

Indeed, you should not be spending your golden years tackling this kind of debt load. I certainly commend you for being there for your kids when they needed help, but it's left you in a dicey situation.Ask Eva

Given where you're at, what are your options? Well, unless you have a house or other assets that you can use as security against a loan, getting a bank to refinance your debt at a lower interest rate is unlikely to happen. Saddled with debt as you are, the bank knows there's a chance that you may never pay it off completely. And if the debt is backed only by your monthly income, no banker will sign up for a debt consolidation loan at this stage.

Without knowing the details of your finances, I can offer only some general recommendations. First of all, to see what your options are, use a credit card calculator to explore different payback scenarios. Banks have different guidelines for calculating the minimum payment, but interest plus at least 1 percent of the balance is common. With your debt at around $30,000 and your average interest rate at about 17 percent, your minimum payment across all your credit cards will likely be around $725 a month.

If you use the credit card calculator, you'll see that if you pay the minimum (which will decrease as you whittle down your balance), it will take 449 months to get rid of the debt, or about 37 years.

On the other hand, if you pay $1,000 a month on the combined debt, you could be rid of the debt in 40 months, or just a little more than three years.

You might try negotiating lower interest rates with your issuers, but with your debt record, the chances they'll say “yes” are low. Besides, you really wouldn't be that much better off. If, by some miracle, you got down to an average interest rate of 12 percent, it would still take you 437 months to get rid of your debt if you were to pay the minimum. If you were to pay $1,000 a month, it would take you 36 months, or three years.

So, as you can tell, the most important factor in tackling your debt is the size of the monthly payment — not the interest rate. Because you're on a fixed income, it may not be easy to increase the monthly payment. But you're already paying more than the minimum, so it sounds like you have some leeway.

Your best bet is to sign up with a credit counseling service, which can help you go over your finances to see where you might be able to trim back, so that you can increase your monthly payments. A good credit counseling agency may also be able to negotiate a lower interest rate with your card issuers. To find a qualified nonprofit agency in your area, check out the websites of the National Foundation for Credit Counseling or the Association for Independent Consumer Credit Counseling Agencies, which can refer you to reputable agencies.

You may find that bankruptcy may be the only way out, but a good credit counselor will be able to help you make that determination.

It will be well worth your while to make some short-term sacrifices to get rid of that monster debt. Those sacrifices include shifting your priorities to take care of YOUR needs, and not those of your kids. If you take steps to get rid of the debt now, you'll be able to enjoy much greater financial freedom for the remainder of your golden years.

Got a question for Eva? Send her an email.