Baby boomers reversing era of debt
By Justin Bachman
Associated Press
NEW YORK — A new car would be so nice: It's $29,000, and the interest rate is practically zero.
Associated Press
Or a swimming pool — that would be fun, and the bank is offering a home equity line to help finance it.
Jeff Cartwright, 45, stands outside his home in Franklin, Tenn., with the 1996 Nissan he bought used. He just refinanced the home with a 10-year mortgage to eliminate debt as quickly as possible.
A weekend in Jamaica costs only $700 for two, hotel included. Just put it on a credit card.
But "no, thanks" — that's what baby boomers are saying. They have enjoyed an unparalleled standard of living, but financial planners say their boomer clients almost uniformly vow to retire their debts before they retire themselves, recognizing it as an obstacle to an enjoyable lifestyle when they finish working.
"As they get older, I do see a very focused effort on wanting to be debt-free," said Adam Van Dyke, a certified financial planner in Irvine, Calif., whose 275 clients are mostly between the ages of 40 and 60.
"They realize they're behind on their nest-egg accumulation goal. And they take a look at their credit card debt or car loans and see that getting in the way."
Jeff Cartwright, 45, said he refuses to battle debt when he's old, and borrows only reluctantly. He and his wife sent their three children to private school, and are paying down more than $40,000 for tuition, plus $120,000 left on their home mortgage.
Both debts will be gone before either retires, said Cartwright, a management consultant in Franklin, Tenn.
"I want to give my kids some advantages, some things I never had, and then I want them to get ... out of my house," he said.
"When you retire, your income is essentially fixed. And you want that income to be able to go to things you want to do, not paying off some debt."
Indebtedness has lost much of its historical moral stigma. The boomers' Depression-era parents found it a rare and necessary evil, used only to buy a house or perhaps a car. Not so their children, who are deeply enmeshed in an era of using plastic to pay for lunch at Burger King.
Easy terms and an expansion of credit to virtually all income levels have left Americans awash in revolving debt; credit card and other monthly balances now top $1.7 trillion. And boomers have racked up a sizable chunk of that, spurred by an optimism that financial planners find surprising, given the huge losses in jobs and stock values in recent years.
As they age, however, many boomers grow fearful about the size of their debt and the prospect that it will muddle their retirements, planners say.
Among enrollees in credit counseling programs, average revolving debt has surged to $16,000 — more than double the $7,000 people carried in the mid-1990s, according to Amerix Corp., a payment services provider to 300,000 people enrolled with such agencies.
People do tend to retire their debt as they age: Fewer than 4 percent of credit-counseling firm payees are 65 or older, Amerix said.
Scott Kay, an Atlanta financial planner, said his clients — mostly in their 50s — are looking to eliminate debt quickly, even when retirement planning isn't their primary consideration.
"It's not even so much to make the cash flow work better, but it's the security. It gives them a bigger margin for (financial) safety," said Kay.
"When someone is 36 or 40, they have 25 years to work, 30 if they need it. (Debt) is just not that big an issue."
Beyond an improved financial outlook, some boomers say paying off debt offers peace of mind — a treasured attribute in old age.
Angela Mercer, a paralegal student in Marietta, Ga., said she and her boomer husband strive to pay off their credit card balances in full each month, though some of their friends enjoy more affluent lifestyles.
"I don't see how they can sleep at night," Mercer said of those with sizable installment debt.
Moreover, credit counseling customers increasingly shun personal bankruptcy filings as they get older — even if they are in a situation where it is appropriate, said Marianne Gray, board chairwoman of the National Foundation for Credit Counseling and a counselor in Fort Worth, Texas.
"They're very adamant. 'It's my responsibility, I borrowed that money and I'm going to pay off every last penny,' " Gray said.
