43% of seniors grapple with higher debt payments as Fed raises interest rates, survey finds

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According to a new survey by the Senior Citizens League, Social Security benefits may not be enough for seniors struggling to pay off their debts. (iStock)

In March, the Federal Reserve implemented the first of several interest rate hikes scheduled for 2022 to offset rising consumer prices. But at a time when inflation is rising at its fastest pace in 40 years, the Fed’s economic policy could push up borrowing costs for senior citizens, many of whom depend on a fixed income from Social Security.

About two in five seniors (43%) have revolving credit card debt, according to a new survey from advocacy group The Senior Citizens League (TSCL). In addition, about half (49%) of respondents have spent their savings or have no emergency funds.

“Credit card debt in retirement can quickly spiral out of control, and this is especially true during times when interest rates are rising,” said TSCL policy analyst Mary Johnson.

Keep reading to learn how the Fed’s benchmark rate hikes will impact the cost of living for American seniors, as well as how you can reduce your credit card balances. One strategy is to consolidate high interest credit card debt into a fixed rate personal loan. You can visit Credible to compare free credit card consolidation loan rates without impacting your credit score.

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TSCL: Social Security payments are not keeping up with inflation

A recent TSCL report found that Social Security’s 5.9% Cost of Living Adjustment (COLA) for 2022 is not enough to keep up with rising prices, especially for higher health care costs. As inflation continues to “erode Social Security’s purchasing power,” many seniors are covering their expenses with credit cards.

Federal Reserve Chairman Jerome Powell said the central bank plans several interest rate hikes this year to tackle inflation, which rose 7.9% a year in February, well above the Fed’s 2% target. But the move could increase debt repayment for seniors who have fixed Social Security incomes.

“We are in a period of high inflation where rising interest rates will mean that many consumers will have to reduce the amount of debt they are carrying on their credit cards from month to month in order to maintain this manageable cost,” Johnson said.

When the Fed raises its benchmark rate, it can cause interest rates to rise on a number of variable rate borrowing products like credit cards. This can increase monthly minimum payments, making it harder for many consumers to pay their credit card bills.

It may be possible for borrowers to lower their monthly payments and save money on interest through credit card consolidation. It’s when you take out a fixed-rate personal loan to pay off your credit card balance in predictable monthly installments over a set repayment period. You can learn more about debt consolidation loans by contacting a knowledgeable loan expert at Credible.

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3 ways to pay off credit card debt

Getting out of debt is hard enough under normal economic conditions, but it can be even harder during times of inflation when prices rise on a number of necessary expenses. But with credit card rates set to rise, it’s more important than ever to find ways to avoid racking up high credit card balances.

“Inflation is making it hard for many older households to stay afloat,” Johnson said. “As difficult as these times may seem right now, it’s important to have a plan to reduce debt — and that would mean putting less on credit cards and paying off more of the balance,” Johnson says.

You can read more about how to get rid of credit card debt in the sections below.

1. Nonprofit Credit Counseling Services

Credit counseling agencies offer free or low-cost services to consumers who are struggling to manage their debts. A credit counselor can enroll you in a debt management plan (DMP) to repay your creditors in monthly installments. They may also be able to negotiate with your creditors to reduce the amount of your debt, waive late fees, and lower your interest rate.

You can find a list of accredited non-profit credit counseling agencies on the Department of Justice website.

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2. Credit cards with balance transfer

It may be possible to move balances from one or more credit cards to a new account with better terms with a balance transfer. This can make it easier to pay off credit card debt in one monthly payment with a lower interest rate.

Well-qualified applicants can also qualify for a balance transfer card with an introductory offer of 0% APR, essentially giving them up to 21 months to pay off credit card debt without interest. These offers are generally reserved for those with very good or excellent credit, defined by the FICO model as a credit score of 740 or higher.

It is important to note that you may be charged a balance transfer fee of 3-5% of the total transferred amount. You can visit Credible to compare balance transfer offers from multiple credit card companies at once.

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3. Credit Card Consolidation Loans

Debt consolidation involves borrowing an unsecured personal loan to pay off several types of debt at a lower interest rate. Personal loans offer fixed interest rates, which means that your monthly payments and debt repayment terms will remain the same during the borrowing period.

Personal lenders determine eligibility and interest rates based on the borrower’s creditworthiness. Applicants with good credit and a low debt-to-income ratio (DTI) will see the best deals possible, while those with fair or poor credit may struggle to get a personal loan with good terms.

Personal loan rate by credit score

Fortunately, there’s good news for consumers considering this debt repayment strategy: Personal loan rates hit an all-time high in March, according to data from Credible. This means borrowers may be able to save more money than ever before by paying off credit card debt with a fixed rate loan.

You can browse the current personal loan rates in the table below and visit Credible to see personalized offers for free without affecting your credit score. This way, you can decide if credit card consolidation is the right method of debt repayment for your financial situation.

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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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