Retirement Gone Wrong? How Seniors Can Dig Out Of Debt

Older middle-class Americans are now carrying more credit card debt than younger Americans, according to the AARP. Host Michel Martin speaks with certified financial planner Steve Repak, about ways for seniors to ease the burden.

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MICHEL MARTIN, HOST:

I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, how often have you heard that there are more black men in prison than in college? A lot? Well, we'll speak with a professor who's gone back over the research and he says that's just not true. We'll talk about this in just a few minutes.

But first, our conversation about personal finance. You probably also heard the many warnings, especially in recent years, about avoiding credit card debt. It appears that Americans under the age of 50 are following this advice, according to a recent study by the AARP. It used to be the American Association of Retired Persons. The amount younger Americans owe on their credit cards dropped by nearly 40 percent between 2008 and 2012, but middle class Americans over the age of 50 have not followed suit.

AARP says they now owe more on their credit cards than younger Americans do, but the reasons for this may surprise you and the consequences may also surprise you. We'll talk about this with financial planner and author Steve Repak.

Steve, welcome back. Thanks for joining us once again.

STEVE REPAK: Thanks, Michel, for having me back on. I really appreciate it.

MARTIN: So Steve, when we first talked with you, we talked about how your own problems managing credit as a younger man got you interested in financial planning, and you freely acknowledged that your problems had a lot to do with being ignorant and showing off, if you don't mind my saying that. You wanted to buy the latest stereo equipment. You wanted to buy rounds of drinks for your buddies.

But this AARP study says that with older Americans, it's different. Now, have you seen that in your practice?

REPAK: You know, I sure have and it's scary and like it's a lot different from when I was in the military. You know, I'd get paid on a Friday and I'd wake up Monday morning with a hangover and an empty pocket. The seniors right now - I mean, they're using credit just to survive and like - so that's pretty scary to think about.

MARTIN: This AARP study says that a quarter of older Americans reported that job loss contributed to their credit card debt. Are you seeing that?

REPAK: Yeah. I sure have. And it's not just job loss, but under-employment. You know, I've talked to many older people where they've moved from full time to part time, and what makes things really difficult, I think, is that, you know, you're used to living at a certain lifestyle, you know, for like 20 or 30 years, so it makes it really difficult to tighten up your belt to make those sacrifices.

MARTIN: And another finding in the AARP study was that older Americans are more likely to use their credit cards to assist other family members. Have you seen that and what are some of the scenarios that you're seeing?

REPAK: This is a sad story. There's a woman that I know and she's in her 70s now, and she had two kids and through their entire lives, you know, the kids - they just made bad decisions. You know, the son, in particular. He had, like, a substance abuse problem, but over the years she was able to support them financially by her salary alone. But once she retired, you know, she didn't have that extra salary, so she started going through her retirement savings to support both of her kids, and at this time, the kids that we're talking about - they're in their 50s and supposedly the son was following - you know, he said, I'm getting back on track. I'm off of drugs and I want to start my own business as a handyman.

And so she sunk about - it was actually 40K into the business. She financed the truck for her son and then she used credit cards to purchase about $25,000 in tools alone, and several months later the child got back on drugs and pawned all the equipment and she was stuck for the truck payment and $25,000 of credit card debt. And, like, right now, today, she's just surviving on a modest pension on Social Security, and when I mean - I mean she's just surviving and, you know, as a parent, you know, I love my kids dearly, but there has to be a time to cut the umbilical cord or basically what you're doing is just enabling your children to make bad decisions for the rest of their lives.

MARTIN: One of the other large contributors to credit card debt for older Americans, according to this study, though, is medical expense. Could you just talk a little bit about how that happens, particularly with this group that's just over 50 but below the age of full retirement?

REPAK: Well, that's crazy. It's like - think of it this way. There are many individuals out there who just can't afford health or dental insurance, so when someone has to make a decision to buy groceries or make a house payment, they're usually going to choose that over paying for insurance, and there's a lot of individuals who are covered under company plans. They've either been let go or moved to part time and their medical benefits get cut out, and when that happens, you know, you have to sit there and find that money for those expenses. And as you get older, I mean that's when your health problems start to show up. You know, if it's with your teeth or with your heart or with anything, and you know, like the seniors are really vulnerable if they haven't planned properly and when they don't plan properly, they have to use credit cards.

MARTIN: So now that we've talked about all the - kind of the nightmare scenarios that I'm sure many people who are listening to us are all too familiar with, help us out here. You know, what are some of the things that people should be thinking about if they've gotten themselves into this situation or if you think that this situation might be headed your way? Do you have some ideas about how to address it?

REPAK: You know, the first thing is not to give up hope. When I give advice, you know, the first step is to put together a spending plan, and when you do that, you can figure out exactly what you're making, but more importantly where you're spending your money.

Once you identify where you're spending your money, you got to go through the different areas that you can either cut out completely or at least reduce, and once you've done that exercise, your next step is to build your savings to at least $1,000, and once you've done that, you start taking that extra money and pay it towards the credit card with the highest interest, and then minimum on the other.

And then once all your credits cards paid off, you want to take that money that you've been using to pay towards debt and start building your savings, because realistically you should have at least three to six months of your living expenses in savings.

MARTIN: Steve, this is where I think some people might take exception to what you're saying. When you were in that situation, you were a much younger man. You'd come out of the military. You had a good job. You didn't have the responsibilities that you have now. You didn't even have kids then, did you?

REPAK: No, I didn't.

MARTIN: So that's the kind of thing where I think people might say, well, sure. A lot of the advice that people get in these magazines and so forth is fine for people who are young, fit and healthy like you with no dependents. What do you do when you are 50 years old, you have two kids, you've got maybe a kid who's getting ready to go to college, another one who's coming right behind, you know, you might need dentures, but they need braces - what do you say?

REPAK: I come from a very humble background. My mom and dad were poor and I didn't get braces. When I got my teeth fixed, I had to pay for it out of my own pocket and, you know, when I talk to seniors, their number one priority should be retirement, and I know that I get people that get angry with me and say, no, Steve, my kids are more important. But there are not too many kids that I know that are out there that are supporting their parents. I mean, it's a total 180 degrees different. I mean, the parents that are out there, they're supporting their kids up until their 20s and 30s and, you know, at the end of the day, if you don't take care of yourself, no one else is.

MARTIN: OK. Any other advice?

REPAK: No. I mean, the big thing is...

MARTIN: Steve (unintelligible) tough love.

REPAK: Yeah. And it's that - everybody sugarcoats things and tries to make things easy, and life is - it's just not fair when bad things happen to good people. And you got to have a plan. You've got to make choices. You've got to make sacrifices. And the people that are able to do it - they reap the rewards. And the people that don't make those hard choices - they're stuck with those bad decisions that they made.

But these are just temporary situations. Number one, your kids aren't going to be little for the rest of their lives. You're not going to be out of work for the rest of your life. Things will change, and that's how you have to look at it, that hey, I'm out of my job now, but you know, three months from now I could find another job. You know, and then when I get that other job, you know, I'm going to sit there and build my savings. I'm going to get out of credit card debt. I'm going to put money away for retirement.

And think of it as long term because, you know, when you're 60 years old, you still have another 20 years of life, at least, so don't - you know, it's never too late to save. It's never too late to change the way you think about money.

MARTIN: Steve Repak is the author of "Dollars and Uncommon Sense." He was kind enough to join us from Charlotte, North Carolina. Steve, good to talk to you.

REPAK: Michel, it was great talking to you again.

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