Lives shattered by debt

BY PAULA GANZI LICATA | Special to Newsday

10:29 AM EDT, May 2, 2008

After Ann Mirto's husband, Lenny, passed away she incurred credit card debt having lost lost part of his income. Now at age 79, the Bethpage woman is working her way out of debt. (Newsday Photo / Bill Davis / May 2, 2008)

Shelley Plock, 54, of Rockaway Park says she and her husband, William, used all their resources when he contracted Legionnaires' disease in 2004 and lymphoma of the spleen in 2005.

"He had to go through extensive chemotherapy and was able to work very little," Plock says of her husband, who works in construction. They are now in debt, having resorted to credit cards. "We needed to use them for things we needed," she said.

Ann Mirto, 79, of Bethpage has accumulated $4,000 in credit card debt since her husband, Lenny, died in 2002. Mirto, whose only income is Social Security, a small pension from her husband and a few dollars from a part-time job, said, "I'm getting rid of most of my credit cards, I'll only have one."

A Stony Brook woman who is now filing for bankruptcy says, "I'm 77 years old, and I'm working a full-time job." The woman who had to sell her Nesconset home in 2006 when her husband got sick and needed to be placed in a nursing home asked to remain anonymous. "I paid my taxes all my life, and now I feel like a nobody."

In today's credit crunch, with rising costs, declining home values and banks tightening lending, people are falling behind on mortgages, auto loans and credit card payments and dealing with an ever-growing mountain of debt.

All this can be particularly troubling for those over 50 who have less time to recuperate and more at stake.

Elizabeth Warren, a professor at Harvard Law School who has studied older consumers and the middle class, commented, "Older Americans are under increasing financial pressure and are carrying more debt into retirement than ever before in history, which leaves them financially weakened.''

Warren noted rising costs for food, medicine, housing and transportation are harder to manage on fixed incomes. In addition, older people are less likely to try to negotiate with lenders or reach out for help, as they prize their independence.

How the mess came about

How did this all happen? Irwin Kellner, chief economist for CapitalOne Bank and MarketWatch, explained that in the postwar era, housing prices rose from year to year, and then "really escalated" between 2000 and 2005. "Homeowners used their home as a piggy bank and an ATM," he says. "It encouraged people to spend far more than they earned. They didn't bother to put money in the bank or savings account.''

Now people can no longer afford their lifestyle with real estate values falling and prices rising, and we have become a buy-now-pay-later country, Kellner said.

Contributing to the debt situation can be many factors, experts said, such as living without a budget, overspending, undersaving, gambling, lack of communication between spouses, making financial decisions without comprehending the ramifications, divorce and, notably, recent home refinancings that have depleted home equity.

Kellner suggests starting to disentangle from the cycle of debt by acting on your mortgage. "If you have a mortgage on your house and it's not a fixed-rate mortgage, convert to a fixed rate as soon as possible." If rates go up, you've secured a lower rate; if rates go down, you can always refinance.

Then focus on your income-to-debt ratio. "If you have to set aside more than 20 to 25 percent to service debt, that's too much debt," said Kellner, who notes that people need to have enough money for essentials such as food, clothing, medical, energy and savings. "The object should be to restructure your debt or to cut down on spending so you can put money in the bank."

Where to find help? Ask your accountant, who may refer you to a lawyer or a credit counselor. "What people have to do is turn to people they trust, as opposed to finding someone in the phone book,'' said Kellner.

Unlike younger debtors in their 20s or 30s who have more time and often a better opportunity to earn income and pay down debt, the over-50 crowd may face an uncertain employment future, higher health costs and eventually a fixed income.

Embarrassed by debt

Regardless of the reason for their debt, a common feeling expressed by those over 50 is a sense of embarrassment, and that led most to want to remain unidentified here. Also, some are in the midst of bankruptcy filings and said they have legal reasons for withholding their names.

A 63-year-old Huntington woman who was fired from her job of 30 years at age 59 said she and her husband got behind on their mortgage when their three-year adjustable reset from 7.5 percent to 10.5 percent, resulting in a $700 monthly increase. They tried to get the rate reduced, but couldn't.

In addition to the home mortgage crisis, credit card debt has turned people's financial footing into quicksand.