Debt problems are no longer the domain of young families striving for the American Dream. More and more, America’s seniors are facing serious debt overloads just at the time that they should be able to live out their days with little stress.
According to recent statistics from the Employee Benefits Research Institute (EBRI), senior citizens are one of the fastest growing demographic group filing for personal bankruptcy. In recent studies, EBRI cites the average amount of debt for households age 75 or older as $23,234.
People are living longer now and may be retired many more years than previous generations. What may have seemed like a good retirement “nest egg” when in the planning stage, might not be enough to see them through years that often include higher healthcare costs as well as expenses. Investments made during their working stage, may have also suffered the blow of the recession and resulted in smaller retirement savings than was originally planned for. Living on a fixed income often greatly reduces the quality of life, just when that quality is most needed and deserved.
In many cases it may become necessary for our older Americans to turn to their adult children for help and support and with the United States still slowly recovering from the great recession, the same adult children are often battling their own debt problems. The emotional impact of no longer being able to live as they planned can be overwhelming for both the senior parent and their children. Without the option of increasing income, bankruptcy can easily seem like the only alternative.
While recent reports demonstrate that American citizens are working at paying down revolving debt, cleaning up their credit, and saving more money one financial area is proving to be more problematic. Delinquency and foreclosures continue to be an issue throughout the United States.
TransUnion has reported that the delinquency rate of home mortgages in the United States increased in the final quarter of 2009 heating the record high of 6.25 percent. This fourth quarter increase represents the 12th straight quarterly increase in the US.
All states showed in a fourth quarter increase in mortgage debt delinquency but Nevada leads the pack with a 16.9 percent increase, followed by Florida with a 14.93 percent increase. The states with the lowest delinquency rates are North Dakota with 1.84 percent, South Dakota with 2.46 percent and Alaska with 2.84 percent.
While the average amount of revolving debt among American consumers has been decreasing, the average amount of mortgage debt increased 0.29 percent in the fourth quarter of 2009 which represents a 0.47 percent increase over the fourth quarter of 2008. The average amount of mortgage debt in the last quarter of 2009 stood at $193, 690 as compared to $192,789 in the same quarter in 2008.
TransUnion forecasts that due to high unemployment, house pricing, and lack of consumer confidence will play a large part in continued increases in delinquency in 2010. The vice president of TransUnion’s financial services business unit, FJ Guarrera states “We believe that the 60-day mortgage delinquency rate will peak between 7.5 and 8 percent over the course of 2010, depending on the prevailing economic conditions associated with the housing market”.
Credit Card companies increased mailed offers of credit cards in the fourth quarter of 2009 according to Synovate, a market research firm. After a period of slow down in offers since 2007, the end of 2007 showed a jump of 46 percent with 386.5 million mailed offers. This does not compare with the 1.6 million mailed in the final quarter of 2006 but does show marked differences in credit card marketing since the beginning of the great recession.
A combination of forces led to the dramatic drop off of these mailed offers. As with any recession, high inflation, unemployment, and lowered incomes created debt problems for many consumers causing lenders to take a second look at extending credit to possibly high risk consumers. Offering credit card accounts to only those with higher credit scores, good credit histories, and a known ability to pay protected the lenders from high losses.
Another factor in the increase of offers may be that lenders are beginning to see the impact of the The Credit Card Accountability, Responsibility and Disclosure Act that will take effect in the next week. Many banks have already notified account holders that the terms of their credit card agreements will be changing to increase interest rates and add fees. Many consumers have decided that it is in their best interest to close open accounts to avoid adding to existing credit card debt and paying more. This leaves banks clamoring for more customers.
It is doubtful that the number of credit card offers mailed to consumers will return to pre-recession levels as consumers continue to move away from the use of credit cards, try to pay off debt, and try to save more.
The American government portrays an optimistic recovery story, but what do the American people have to say about the post-recession economy? According to responses to a recent survey, America’s citizens, who have largely been battling a war against credit card debt and soaring unemployment rates are less than certain about the direction the economy is currently taking.
It is believed that unemployment plays a large part of the survey responses. The United States Department of Labor states that the unemployment rate has increased from 5 percent at the recession’s onset, to 9.7 percent in January 2010. January brought job losses of 20,000 following 85,000 losses in December.
The results of the Harris Interactive survey, which was conducted during the week of January 18, clearly demonstrate that approximately 40 percent of the respondents reported earning less now that they did before the recession began with only 18 percent saying that their household income has increased.
40 percent of the survey participants also say that they have not been able to save as much money as they could before the recession began, whole 18 percent stated that they had increased their amount saved.
Only 14 percent of the respondents indicated that they believed that the economy was showing positive signs of improvement. These results indicate that the fight is still on and that debt, high costs, and insufficient income are still playing a large part in the everyday lives of American consumers.
President Obama has proposed to increase the child and dependent care income tax credit currently available to low and middle income families which could provide extra cash to be applied towards family credit card debt loads. Many working parents are struggling to get out of debt and meet day to day expenses and this could help them on achieve their goals.
The current childcare credit is available on a sliding scale. Families with an adjusted gross income below $15,000.00 are allowed to deduct 35 percent of their child or dependent care expenses. Those with an adjusted gross income of $43,000.00 or more are allowed to deduct 20 percent of their child or dependent care expenses. All earnings brackets are limited to a $3000.00 deduction total for one child and $6000.00 for two or more children.
President Obama’s budget proposal includes a provision to increase the Child and Dependent Care Tax Credit rate to 35 percent for families making under $85,000.00 per year. He has also proposed an increase of $1.6 billion for child care funding for low income families.
To qualify for the Child and Dependent Care Tax Credit the dependent must meet certain qualifications:
The dependent must be 12 years of age or younger OR 12 years of age or older and disabled.
The dependent must reside in the taxpayer’s home and the taxpayer must provide more than 50 percent of the cost of maintaining the home.
The person who provides daycare services must not be another of the taxpayer’s dependents. The taxpayer must report the daycare provider’s name, business name (if applicable), address, and either Social Security or Employer Identification Number.
Designed to help protect consumers against , The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) will take effect on February 22. While some of the more problematic practices by credit card issuers have been addressed by the CARD Act, credit card companies have been busily creating new fees and charges to replace lost revenue caused by the law’s more stringent guidelines.
Many credit card issuers are adding an annual fee for the privilege of having a card. These fees are charged each year whether the card is used or not and can range from a modest $25.00 to over $100.00.
Inactivity fees are also being added to the terms of some credit cards. This could signal trouble for American consumers who have been battling to pay off debt and have “locked away” their credit cards to keep from using them. Inactivity fees are levied on credit cards that haven’t been used in a set period, usually one year.
Changing how a variable rate is calculated will garner some extra profit for credit card issuers. Usually, in the past, interest rates on a variable rate card were tied to the prime rate using the formula of prime plus a certain number of points. Some credit card issuers will now still tie to the prime rate, but to the average prime rate over a period of time. Th prime rate is fluid and changes frequently. This means that the credit card user doesn’t benefit immediately by the prime rate dropping and lowering his interest rate immediately.
Another area of concern for those trying to manage debt by transferring balances from high interest cards to lower interest cards is higher balance transfer fees. In the past, the average balance transfer fee was around 2 percent. Banks are now charging as much as 5 percent and many are dropping their offers of free balance transfer on new cards.
Now, more than ever, it’s important for those managing credit card debt to carefully read the terms of their credit accounts and be wary of hidden fees.
The income tax season is here and this year most American taxpayers have a little more cash to help them manage their finances and get their credit card debt paid down. The Making Work Pay tax credit went into effect in the spring of 2009 when tax withholding tables were recalculated to decrease amounts withheld from paychecks by up to $400 for single taxpayers and $800 for couples.
While the tax savings benefit most taxpayers, some people may find that not enough tax is being withheld from their income due to how the Making Work Pay credit is set up. A small percentage may either not receive as large a refund as usual next year and still others may find that they will have to pay more in next year. Among those that should be concerned and keep careful track of their withholding are:
Those receiving a pension
Couples with two or more incomes
Individuals working more than one job
Those who can be counted as a dependent
Some Social Security recipients who work
Those who do not have valid Social Security numbers
If you believe that an insufficient amount is being withheld from your paycheck you can verify this by using a withholding calculator at the Internal Revenue Service web site. If not enough is being withheld the IRS provides the option of submitting a revised Form W-4 (Employee’s Withholding Allowance Cerificate) to ensure that the right amount is being withheld.
For more information about the Making Work Pay credit view the video below.
Debt consolidation is often mistaken for debt settlement or credit counseling, but there are important differences among all three.
With a debt consolidation loan, people take out one larger loan and use the proceeds to pay off all their smaller credit card debts. People who use these services make one, hopefully smaller, monthly payment to pay off the new loan. Some debt consolidation loan companies may also work with the creditors to lower interest rates or to waive late fees.
Credit or debt counseling usually involves meeting with a credit/debt counselor and is typically a very low cost. Counselors work at many locations across the country and may have many offices in each State.
In a credit counseling program, a person and his or her creditors create a debt repayment plan, which is a voluntary repayment schedule worked out to include reduced fees or other debts. A person makes payments to the debt consolidation agency, which sends that money directly to their creditors.
Both of those methods are generally geared toward avoiding default of a debt.
But debt settlement is just the opposite. Some very shady debt settlement companies, sometimes called debt negotiation companies, do not negotiate with a persons creditors directly. Instead they wait until the overdue debts have been turned over to a collection agency and only then start the process of negotiating for a lower repayment amount.
With these shady debt settlement companies, debtors typically pay an upfront setup fee capped by state law at 5 percent of the persons debt . Most of these shady companies often charge additional fees, capped at 20 percent of the persons debt. So if a person owes $100,000 they could pay up to $25,000 to the company, not their creditors.
As of February 22 2010, new rules governing credit cards will take effect. These rules can be a helpful tool in the average American consumer’s journey to get out of credit card debt. Below are some key changes designed to help credit card users.
Your credit card company must provide 45 days notice when they plan to:
Change your interest rate with the exception of variable interest rates tied to an index such as prime interest rate, the expiration of an introductory interest rate, in the event that you have failed to make a payment under a settlement agreement.
Change certain fees including annual fees, cash advance fees, and late fees
Make any other significant changes to the terms of your card.
When your credit card company is planning to implement changes to the terms of your credit card you will be given the option to accept the terms or cancel the credit card before the date that the new terms go into effect. Taking that action will result in your account being closed and can result in your monthly payment being increased to an amount that will pay off the card in a set amount of time.
Your credit card company must tell you how long it will take to pay off your balance. This will be shown on your monthly billing statement and will show a projected payoff date if you pay only the minimum payment. The statement will also reveal how much you must pay each month in order to pay off the debt within three years.
The new regulations are designed to protect consumers from unscrupulous lending practices, to help them understand how their credit account works, and better manage their personal debt.
Personal finance advisors recommend that every consumer should have a basic emergency fund that would cover three to six months living expenses. If you’re diligently working at getting out of debt this may seem unrealistic. If you are fighting credit card debt that carries high interest rates as high as 18 percent or more it would, on the surface, make sense not to leave large sums of money in the bank gathering a low interest rate.
Many facets of American life are unexpected. Sudden job loss, medical needs, car repairs and other emergency situations usually do come as a surprise to those who suffer through them. If you are actively working at reducing credit card debt the financial stress these problems cause can be completely overwhelming.
To gain command of a debt problem one must pay down that debt consistently without adding to it along the way. The problem of credit card dependency arises when there is no other option but to use plastic to pay for life’s unexpected expenses. An emergency fund, even if it is small, can keep you from continuing the vicious cycle of credit card dependency.
What would be a reasonable amount to keep on hand prevent the need to break the credit cards out? If you are heavily in debt, start out small. Try to get $500.00 to $1000.00 set aside as your “don’t touch the credit card” fund before you begin paying extra toward debt reduction. Remember to continue paying at least the minimum payment toward that debt while getting you fund together. When you have a safety net set aside, you should start paying more toward the debt, but continue to add smaller amounts to your fund.
Getting into debt is usually easy. Getting out of it takes determination and sacrifice, but don’t sacrifice your, or your family’s security.
