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No one is exempt from feeling the impact of the economic downturn, including the elderly. Just like many others, seniors are struggling with mounting debt that’s preventing them from retiring comfortably, if at all.

According to Federal Reserve data analyzed be the Employee Benefit Research Institute, the average debt held by senior citizens shot up to $50,000 in 2010, an increase from 83 percent in 2001. The culprit for this lingering debt is housing-related. The St. Louis Federal Reserve found that families headed by someone 60 or older had the largest increase in average mortgage debt by percentage between 2000 and 2010.

It’s not that seniors are going out shopping for homes. It’s that pre-downturn money was so cheap that many took out the home equity lines of credit on their homes to make home improvements, travel, or even invest. Only 24 percent of homeowners over the age of 62 had mortgage debt in 1992, but that figure soared to 45 percent in 2010.

Other than mortgage debt, more seniors are relying on credit cards. Just about one-third of American seniors are relying on credit for daily expenses. Amy Traub senior policy analyst at Demos, the company that found these results said, “If people are relying on credit cards to pay living expenses, it’s difficult to see how that turns around if they aren’t earning additional income.”

Increased debt has forced many senior citizens to continue working well past the normal retirement age. Many are uncertain if they will experience the comfortable retirement they expected in their younger years and for some seniors with looming debt, retirement will never become a reality. The key is to plan early, save aggressively, and make your money work for you so you won’t have to work into your golden years.

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There is a pattern for some people within the black community of poor financial education. A pattern I didn’t know existed until I fell prey to the pitfall of misinformation where money was concerned.

It was 2009 and I was in grad school. I had stopped going to class regularly. I only left my dorm room to eat. I stayed in bed all day, every day watching television. I was more than stressed. I was literally becoming more and more depressed with every debt collection phone call I ignored into the voicemail folder of my phone.

I didn’t mean to rack up almost $8,000 in credit card debt in less than two years. Somehow the idea that I needed to begin building credit was implanted in my naïve brain the summer between freshman and sophomore year of college. I had heard that if I did not get a credit card and begin building credit in college, I wouldn’t be able to buy a car or a house later in life because I would have no credit history to draw from.

That freaked me out. So, having done little to no research, I grabbed the MTV University Platinum card. It featured a bunch of perks and rewards and goodies and what-nots. It also featured a $4,000 limit and a 32 percent interest rate, but I had no clue what that would mean so I had no worries. Wasn’t I the frugal young lady who had stretched $20 every week during freshman year? Please, $4,000 was going to be no problem. I would only use the card for emergencies anyway.

Well, EVERYTHING soon became an emergency. Acrylic nails. Pizza. Trips to the city. The movies. I could NOT control myself when it came to that little piece of plastic. In my mind, as long as I paid something on it every month, I was good. I ended up getting another credit card with a lower interest rate to transfer my debt and save myself some money while I figured exactly how to pay off $4,000 when I was only making $500 per month on work study. I ended up canceling both cards and burying my head in the sand, scared to answer calls from debt collectors. Then, one day a collections agency called and basically threatened to take me to court OR garnish my wages if I did not set up an automatic payment with them right then for $325 each month. Scared out of my mind, I did it. Then I called my mother. She freaked. She told me I did not have to do that, especially since I didn’t have anywhere near $325 in my bank account.

I ended up having to freeze the account and pay my bank back the money they fronted for my stupidity, as well as a hefty overdraft fee.

From that moment, I knew I could not wallow in depression and anxiety about my money situation anymore. It was not going to get any better by avoiding my creditors. I had to educate myself and figure out how to confront the problem head-on. My finance professor happened to be discussing the difference between credit card interest and student loan interest one night during class. He expressed that student loan interest rates couldn’t exceed about 7.5 percent (at that time) while credit card interest rates could be as high as 30 percent. He said it was wise to take out a student loan to cover credit card debt (depending on the individual situation). Well, I looked at my debt situation, talked to my creditors to try to get my interest reduced, but to no avail. They weren’t budging. So, I took out a student loan to cover my credit card debt and ended up saving myself thousands in interest fees.**

Since 2009, I swore off credit cards for a long time and only decided to get another one in early 2011, which I didn’t even use until that summer. I paid the card off in full every time I used it.

My situation is not so different from many young people who are thrust into taking care of their own finances with little to no guidance or foreknowledge. The most important lesson I have learned in dealing with the depressing trial of massive credit card debt is this: DO NOT SPEND WHAT YOU DON’T HAVE.

If I know I can’t pay off at least 80-90 percent of what I want to purchase on my credit card, I don’t even try it.

What you’re not told is that every little thing affects your credit score. So, while building credit is important – having a job to pay off your credit card and the willpower not to live above your means is more important. It would be different if I had budgeted and used my credit card wisely for things like school supplies and the occasional treat, but I lost my ever-loving mind and charged everything. It’s so easy to swipe that bit of plastic and forget about paying it off.

1. Educate yourself before you choose a credit card. Know the interest rates. Ask about monthly fees and balance fees (they add up). Or if you’re sinking in debt and burying your head in the sand like I was, get up, call your creditors and explain your financial situation. Get on a plan to pay them back little by little. Trust me, they want to help you pay them back their money. These are people with loans and debt just like you. They get it.  More often than not, they are willing to negotiate terms.
2. Create a budget for yourself.  If you get into the habit of spending wisely, you’ll feel so accomplished you’ll continue. I use the 50/30/10/10 rule. Fifty percent goes to bills. Thirty percent goes to my treats, shopping etc. Ten percent is tithed to my church. And the last 10 percent is saved. Having a plan will always yield favorable results if you commit to it. Sites like Mint.com are super useful in setting up streamlined budgeting systems.
3. Understand how credit cards work. Even if you pay your card off every month, maxing it out is no good. A consistently maxed out card signals an out-of-control spender to the credit bureaus and it decreases your credit score. Using 20 to 30 percent of your card and paying it off each month shows restraint and responsible stewardship.
4. Find deals! You can still afford to have fun and purchase nice things even while on a restrained budget, you just have to search out great deals. And with sites like LivingSocial and Groupon it isn’t hard to find great deals anymore. There is no reason why anyone should be spending full price for anything, ever. Clip coupons! Be a loyal customer – the perks are AWESOME.
5. Don’t focus on your past mistakes with money or all the things you wish you could do. Focus on the lessons learned and the courage you mustered to take back control of your finances. With time and a committed plan, you’ll be out of debt and more financially empowered than you dreamed.

Many churches and community centers offer free financial courses to help the community find financial freedom. Be active about taking control of your finances. Seek out the help and the tools. They are abundant and so severely under-utilized.

**Taking out a student loan to cover credit card debt is what worked for ME. I am not advocating this course of action for everyone. Find what works best for you.

La Truly  seeks to encourage thought, discussion and change among young women through her writing. Follow her on Twitter: @AshleyLaTruly and AboutMe about.me/Ashley.hobbs.

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From YourTango

Coming home from vacation is so hard! While you’re swinging in a hammock in paradise you forget your long list of things-to-do, your bills, your diet and your boss. Coming home is a startling return to reality.

Josh’s return home was especially startling.

Home from Maui with his new bride, he went to their bulging mailbox to retrieve the mail. He wondered how two people could get this much mail in just one week? At least the wedding and honeymoon bills hadn’t arrived yet. He hated to think of the bills they racked up in the last few weeks! But a wedding and once-in-lifetime-trip was worth it and he knew he and Paige would remember this time forever.

Read more at YourTango.com.

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Research conducted by Ohio State University economics professor Lucia Dunn and Sarah Jiany from Capital One Financial found that adults in their late 20s and early 30s have more credit card debt than their parents and grandparents did when they were the same age. On average, young credit card holders have $5,689 more debt than their mom and dad, and $8,156 more than grandma and grandpa.

Using readily available data from 1997 to 2009, the researchers were also able to deduce that these young people are taking longer to pay back this debt, running the risk that they will head into old age with these lingering balances.

“If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” Dunn tells Reuters. “Credit is more readily available now, and there have been changes in interest rates and less stigma attached to having credit card debt, which may all make younger people today more willing to go into debt,” she continued.

We reported late last year on the fears expressed by some that they’ll never be able to retire because of their freewheeling spending ways as young people. Once again, this brings home the important point that you must live within your means. Quick everyday tips for doing just that:

-Use cash. When the cash is gone, the spending is over. And watching your money pass out of your hand makes you want to hold on to it a little more tightly.

-Budget for savings. A budget should include ways in which you are putting money to the side continuously. That includes money for retirement (a 401K or Roth IRA, for example) and money that you can spend in the event of an emergency. If you’re thinking about making a big purchase, you might consider another account (or even a coffee can) in which you put cash to the side for that special expenditure.

-Remember that small purchases add up. Chances are, you aren’t going to fancy restaurants on the regular. Or buying expensive clothes every time you go to the mall. But all those smaller purchases are hitting your wallet as well. If you’re hitting happy hour three times a week, that could be upwards of $100 right there. Twice monthly trips to H&M or Target? We all know how much stuff we think we “need” when we go into those shops. Think twice. Say no. Say it out loud even… who cares of other shoppers think you’re crazy? Reflect upon all the other, much better stuff you could be buying.

http://clutchmagonline.com

That conservative, well-planned savings plan you had may not be doing as good of a job as you think, and you don’t even know it. According to MSNBC, a new study observes that of 3,000 Americans, about half spend more than they earn at least a few months out of the year. But even though they acknowledged the spending, only one in 10 participants said that their lifestyle was more than they could afford. In addition, of the people who spend more than they earn part of the time, around 36 percent use their savings to meet their financial needs. Twenty-two percent use credit cards and 12 percent simply make late payments on their bills. It would appear Americans are spending and don’t even realize how much they are spending.

The Federal Reserve reported last week that Americans seem to be more ok with taking on debt; Americans have increased borrowing in recent months for cars, education and credit cards. Others may feel obligated to live beyond their means. The median household income has decreased by seven percent.

Among all the denial, at least the other half, rarely spend more than they earn in a month.

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It’s just one little purchase here, one late fee there, and suddenly you’re denied for a loan and didn’t see it coming. Take these simple steps to break bad financial habits.

http://www.balancetransfercreditcards.org

A credit card can be a wonderful tool if used wisely. It can allow you to earn points on everyday purchases or for buying things that you would purchase anyway. A credit card can also give you a short-term no-interest loan if you pay it back within the statement period. However, not all credit cards are created equal and when you are shopping for your next card, you should take a few things into consideration to choose the right card for you.

It’s the most wonderful time of the year!” sings Andy Williams in the back of my head every August when the fall fashion mags start to come in the mail and bring with them good deals.  Around this time the mail carrier bears a bit of a heavier burden since all of my September issues of Glamour, InStyle and the like are stuffed with all of the latest fall fashions and I start making a list (and checking it twice) of leather knee boots, high-waisted skirts and pea coats that I need to buy.  In fact I am currently infatuated with a French Connection two-toned trench featured in Glamour’s September issue, the one with red-hot Rihanna gracing the cover.

This past weekend after unburying myself from the stiletto avalanche that I fell victim to after opening my closet, I decided I absolutely needed to clean out my closet to make room for new purchases.  As my mother would say, “You have to get rid of the old to make room for the new.”  Would I be subscribing to this philosophy if I had a huge Mariah Carey-style walk in closet?  I don’t think so.  But that doesn’t mean I didn’t find items that had been living in my closet rent-free for years that I know I absolutely would never wear again.

Are you confused about what to keep and what to toss from your closet? To avoid being featured on a future episode of Hoarders check out these rules that I live by to make the most of the little space I have:

Read the rest of this entry »

By Steven Barboza

Some ringing cash registers indicate an economy on the mend. Others signify nosedives into the black hole of debt for more and more African Americans.

Studies show that black people are shouldering a disproportionate burden of the nation’s credit card debt, and thus are among those consumers who contribute the most to credit card industry profits.

Several years ago, study data found that black cardholders who carry balances on their accounts are more than twice as likely as whites to pay high interest rates.

“About 15% of African Americans and 13% of Latino cardholders pay interest rates greater than 20%,” said Jing Jian Xiao, professor of consumer finance at the University of Rhode Island, who compiled a study in 2004 using data from the Federal Reserve and CardData, an online database of industry information. “Only 7% of white cardholders pay interest rates higher than 20%.”

Last month, another study, “Credit Card Ills,” which analyzed racial disparities in industry practices, reported that credit card companies are reaping billions of dollars in profits from the inability of black and low-income consumers to match their monthly incomes with their expenses.

The companies use a variety of practices to boost profits, from mailing out “pre-approved” credit cards to offering cards with zero-interest teaser rates that later shift to punitively high annual percentage rates (APRs) and excessive fees, the study notes. These offers can be tempting to barely solvent consumers during the aftermath of the Great Recession.

“Credit card companies have zeroed in on this struggling population because it contains the people most likely to revolve balances for the longest periods of time, representing the sweet spot of the market, below convenience card user but above the individual in bankruptcy proceedings,” notes Andrea Freeman, author of the study, the first analysis of racial disparities in legal scholarship.

Credit cards for these people and others serve as a “plastic safety net,” providing a means for people to fill a gap between falling incomes and the bills they must pay in order to survive financially, at least temporarily.

In the key findings of yet another study, nearly 60% of African Americans held a credit card, and nearly 84% of these cardholders carried a month-to-month balance in 2004.

Also, nearly one out of five card-indebted African Americans earning less than $50,000 was in debt hardship, meaning 40% of their income was being spent on debt service payments. In many cases, debt spiraled out of control for this population during the latest recession. The study was part of a series of briefing papers titled “Borrowing to Make Ends Meet.”

The study found that African Americans are more likely to fall victim to high cost financial services because many predatory lenders open offices and market aggressively in their communities, providing illusory solutions but contributing to worsening household finances.

One explanation offered for the widening debt gap between African Americans and whites is the wealth disparity among racial and ethnic groups. Just 10 years ago, African Americans held only 10 cents for every $1 of white wealth. Just five years ago, less than half of African American households owned their homes compared to three quarters of white households who enjoyed home ownership.

Today’s financial realities have resulted in two types of credit card users, according to Freeman, who teaches at California Western School of Law. “I identified one type as a ‘subsistence user,’ someone who relies on credit cards to pay her electricity and gas bills and to purchase necessities such as groceries and diapers. Without a credit card she lacks the means to support herself and her family because of stagnant real wages.”

“The other major type of credit card user, the ‘lifestyle user,’ can purchase basic necessities without borrowing, but uses credit cards to enhance her lifestyle, whether that means purchasing movie tickets, birthday gifts, or work clothing.”

Many cardholders get into financial trouble by making a series of charges that taken alone are hardly threatening but when combined can accumulate quickly into overwhelmingly large balances. Cardholders elect to pay via a revolving balance, yet wouldn’t dream of taking out a bank loan for the same amount.

According to a report by The Washington Post, there is a silver lining to the economic downturn that has crippled much of the country for the past three years. Analysts say families are making serious headway when it comes to climbing out of debt and establishing or boosting their savings.

The Post reports, “Compared with the summer of 2008, when consumer debt peaked, Americans now have 7 percent less mortgage debt, 12 percent less in auto loans and 15 percent less credit card debt, according to the Federal Reserve Bank of New York. Loan payments last year were at their lowest level in a decade.”

Well! What we have here is one of those rare double silver linings: It seems we’ve also learned something from the recession!  Borrowing and spending more than we could afford – bad. Paying down debt and increasing savings – good. The report goes on to say that Americans are saving at nearly triple the rate they did between 2007 and 2009, setting aside 5.3 percent of their disposable income in December.

Slowly but surely, regular people are getting their financial acts together, which can in turn help improve the economy overall. But of course, the ever analyzing analysts still have concerns and caution against too much optimism. “A major question now is how much longer Americans will continue to pare their debt and rebuild their savings. The answer depends on where debt loads and savings rates will ultimately settle,” the report says.

Read More: Climbing Out of Debt, Americans Are Saving More