4 Reasons Why Carrying a Credit Card in Retirement Is Risky and Smart
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Written by
Caitlyn Moorhead
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Edited by
Amen Oyiboke-Osifo
When you’ve reached the permanent end of your workday and finally get to live out your long-awaited retirement plan, you still need to make sure your finances will stay in good standing throughout your golden years. Make sure you take advantage of any financial tools or financial advisors you come across and start thinking about just what money moves to make as a retiree.
Check Out: Essential Dos and Don’ts for Using Credit Cards Wisely
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As for financial tools, the most common being the credit card, you want to pay attention to both the advantages and pitfalls for retirees. If you use your credit card wisely and make your monthly payments in full and on time, it can be a valuable asset for debt management. If you use it less carefully, it can throw your debt-to-income ratio out of whack and put you in a high-interest debt spiral.
Here are five reasons why carrying a credit card once you hit full retirement age is both risky and smart.
Risky: Your Fixed Income vs. Variable Debt
Most retirees live on fixed incomes, strictly allocating their monthly budget based on what Social Security benefits, pensions or retirement savings they have been able to set aside. However, this means they don’t have the flexibility to absorb large or unexpected expenses or too many life-of-leisure splurges.
Relying on a credit card for purchases can lead to accumulating debt that’s difficult to repay. Unlike during working years, there may be limited or no opportunity to earn your way out of debt. High interest rates and annual fees can quickly turn a small balance into a financial burden.
Smart: Build, Maintain and Improve Your Credit Score
Even in retirement, your credit score matters whether you want better rates or need to secure a reasonable loan. For example, it can impact your ability to rent a home, qualify for certain insurance rates or access emergency lines of credit.
Carrying a credit card and using it responsibly by paying off the balance in full and on time each month is not only a great way to maintain good financial standing, but it is also the fastest way to improve your score if you need a quick boost. Maintaining a strong credit profile is important to ensure you don’t put all of your nest egg in one basket.
Risky: Your Budget vs. Impulse Purchases
Credit cards make it easy to spend money you may not have budgeted. In retirement, when budgeting is key to making savings last, the temptation to indulge or support others financially (e.g., adult children or grandchildren) can become dangerous. Without the steady income of employment, it’s harder to recover from these lapses in financial discipline.
Smart: Purchase Protection and Travel Perks
Many retirees enjoy traveling or making larger purchases, and credit cards often come with built-in protections. These can include extended warranties, fraud protection, rental car insurance and even travel insurance. When used with careful consideration, credit cards can offer peace of mind and savings on travel and shopping, which are two of the biggest perks of retirement.
Final Take To Go: It’s All About Swiping Wisely
The bottom line is that carrying credit card debt in retirement isn’t inherently good or bad, but rather it’s all about how you use your card that matters. By understanding both the risks and benefits, retirees can make informed decisions that protect their finances, enhance their lifestyles and bring peace of mind for the long term. Like any tool, a credit card can be helpful or harmful—use it wisely, and it can be one of your best financial allies in retirement.
Keep in mind that it can also be a double-edged sword in emergencies. Though swiping your credit card can provide immediate access to funds when cash is unavailable, such as during medical emergencies or urgent home repairs, if it’s used frequently for emergencies without a repayment plan, the debt can snowball. Retirees should treat building a credit card balance as a backup plan, not a default solution, and ensure they have savings set aside for anything life throws at them in retirement.
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