In light of the worst economic downturn in decades and rising costs of health care, older Americans today are carrying more debt than ever on credit cards—even more so than their younger counterparts.
In 2012, the typical 50-plus household carried an average credit card balance of $8,200, according to a recent AARP report. That compares with an average balance of $6,258 for those households under 50.
What’s troubling, AARP notes, is the reversal of the trend from 2008 when younger households were the ones amassing more debt on credit cards. The reasons may have much to do with the things senior households are spending money on today—medical expenses, helping family, and even paying for daily living expenses—as well as supplementing income due to lower income levels, job loss and forced early retirement.
“This report suggests that credit card debt among older Americans is primarily a reflection of difficult economic times, not a lack of personal financial responsibility,” AARP writes.
The times represent a need for solutions for those facing a household budget shortfall as a third of older households report having used credit cards to pay for basic expenses such as rent, mortgage payments, groceries or utilities.
In fact, according to the AARP report, more than half of Americans 50 and older report carrying debt on credit cards to pay for medical expenses.
For those who own their own homes, home equity in the form of a reverse mortgage, could be one avenue for them to pursue.
By obtaining a reverse mortgage, seniors 62 or older are able to access a portion of the home equity they have built over time through a Federal Housing Administration-insured program called a Home Equity Conversion Mortgage (HECM).
Unlike most mortgages, HECM loans generally don’t have any credit score requirements. The proceeds of the loan, which can be taken as a lump sum, a line of credit, or as monthly payments, can be used for anything the borrower chooses.
There are several options when it comes to taking out a reverse mortgage including fixed and adjustable rate loans.
The loan becomes due when the last borrower on title moves out of the home, passes away or otherwise fails to meet the obligations of the loan. At that point, the borrower or his or her heirs are responsible for repayment.
Many borrowers or their families opt to sell the home and repay the loan with the proceeds of the sale. Reverse mortgages offered under the HECM program come with an important protection—borrowers will not have to repay more than the home is worth at the time of sale.
The loan proceeds from a reverse mortgage can help older Americans who are struggling under the current economic times, whether they have already accrued credit card debt, or are considering using credit cards to meet their financial obligations.