You save for many years with the idea of living life to its fullest in retirement. When the time comes, it’s critical to have a plan in place for managing your money and keeping your debt in check. In the following slides, we’ll share the best tips for using credit cards in retirement. With these, you can take full advantage of this financial tool, without concerns about racking up too much debt.
Choose One Credit Card
Depending on your credit history and score, you may qualify for more than one credit card. However, the more of these you have in your wallet or purse, the more likely you are to abuse them or lose track of payments.
It's best to choose one credit card that does everything well and stick with it throughout your retirement. That, or until you have a good reason for making a change.
Get Something in Return for Your Spending
If you’re going to use a credit card, you might as well get something in return. Travel reward and cashback credit cards are popular among consumers of all ages, including those in retirement. You earn points or cashback with every dollar you spend, allowing you to milk every possible benefit from your card.
For example, the Capital One Venture Rewards credit card is a top choice among retirees who enjoy traveling.
Know What’s Most Important to You
No two people are looking for the exact same thing from their credit card. Maybe you’re most interested in earning travel rewards. Maybe cashback gets you excited. Or perhaps you’re seeking a credit card with the best safety and security features.
Make a list of three to five must-have features, and keep these in mind as you compare multiple credit card offers. Doing so will help you narrow your options and make a confident decision.
Secure a Card with a Low, Fixed Interest Rate
Even if it’s your intention to never carry a balance, you may find it necessary at some point in the future. If you have a strong credit history and score, you’re likely to qualify for an industry competitive fixed interest rate.
A fixed-rate is preferred to a variable rate, as you never have to concern yourself with an increase. And that will give you peace of mind in your retirement years.
Don’t Shy Away from a Secured Credit Card
Do you have bad credit? Are you finding it difficult to obtain an unsecured credit card? A secured credit card may be the answer to your problem. With this, you make a cash deposit upfront that’s used as both collateral and your credit limit. For instance, if you make a deposit of $750, this acts as your credit limit.
And if you neglect to pay your bill, the credit card issuer has the legal right to keep your deposit. After responsibly using a secured credit card for six to twelve months, you can then apply for an unsecured card.
Know How Much You can Comfortably Spend Each Month
As you transition into retirement, your financial situation is sure to change. Rather than receive a steady paycheck from your employer, your income will come from other sources, such as Social Security, annuities, and retirement accounts. It’s critical to know how much you can comfortably afford to put on your credit card each month.
Without this number, overspending is likely. And if you do this for too long, you could find yourself running out of money - and that’s not a situation you want to deal with.
Take Advantage of Your Credit Card’s App
Today’s credit card companies make it easier than ever to track your spending, manage your account, and reach out for service. Using your credit card’s app is the best place to start, as it provides access to anything and everything related to your account.
American Express's mobile app is consistently ranked best in class, thanks to its ease of use, streamlined navigation, and range of services. It only takes a minute or two to download and is a great convenience.
Make a List of Approved Credit Card Expenses
With access to a credit card, it’s easy to feel like you can buy whatever you want. This is particularly true since your bill isn't due right away. Unfortunately, this approach can dig you a deep hole that’s hard to escape.
Avoid this by creating a list of approved credit card expenses, such as groceries, entertainment, clothing, and travel. Anything not included on the list should be purchased in another manner, such as with cash or a debit card.
Ask for a Credit Limit Increase Before You Retire
While not the case with everyone, most people experience a decrease in income during retirement. This makes it difficult to receive a credit limit increase. It’s best to request a limit increase before you retire, as your income is higher and your odds of approval is greater.
This way, you're better prepared to make any major purchases that you don't see coming in the foreseeable future. A 2018 poll conducted by CreditCards.com found there's an 85% chance that you'll be approved for a higher credit limit if you ask.
Pay Off Your Balance Every Month
Make a pact with yourself that you’ll pay off your credit card balance every month. For this to hold true, you must: know how much you can comfortably spend, manage your balance throughout the month, and set a payment reminder.
Remember, when you carry a balance you’re likely to pay money in interest (unless you have a card with an active zero percent introductory rate). Staying on top of your payments is important!
Use a Balance Transfer Credit Card to Get Organized
Organization is the name of the game when it comes to your finances in retirement. If you have more than one credit card and more than one balance, consolidate it with a balance transfer credit card. This has many benefits, including the ability to bring all your debt under one roof.
It also allows you to save money on interest, since you only have one balance. And best yet, most balance transfer credit cards have a zero percent introductory rate that lasts anywhere from 12 to 24 months.
Understand the Impact on Your Credit History and Score
There’s more to using a credit card than convenience. It has a profound impact on your credit history and score, and understanding this allows you to make more informed decisions. For example, if you continually use your credit card and pay your balance in full each month, it’ll result in a credit score increase (as long as you’re not doing anything else wrong).
Over time, the responsible use of a credit card will strengthen your credit history.
Don’t Max Out One Card and Apply for Another
You can always apply for another credit card, right? While this may be true to a certain extent, it’ll eventually catch up to you. A maxed-out credit card will drag down your credit score, while also making it difficult to secure loans in the future. Not to mention the fact that the minimum monthly payment will affect you.
Don’t get into the habit of maxing out one card with the idea of applying for another. This is a vicious cycle that will eventually result in big trouble.
Don’t Rely on Credit Cards to Fund Your Retirement
It’s okay to use credit cards in retirement. It’s not okay to use credit cards to fund your retirement. If you don’t have enough money to comfortably live in retirement, consider options such as withdrawing more money from your retirement accounts, living a more frugal life until your Social Security benefits kick in, and/or taking on a part-time job.
You can only rely on credit cards to fund your retirement for so long.
Add Your Spouse to Your Account
Make life easier by obtaining a credit card for both you and your spouse. With two cards, you and your spouse can use it simultaneously. Also, when used responsibly, it allows both of you to reap the positive rewards on your credit history and score.
Tip: stay on the same page in regards to your spending, as you’re accessing the same credit limit. It's important to have a conversation and agree on your credit card use off the bat to avoid miscommunications.
Watch for Fees
Credit card fees have a way of creeping up on you when you least expect it. So, if you’re applying for a new credit card, find one with fees that you’re comfortable paying. Are you okay with paying an annual fee of $100 or more? How about a paper statement fee? What about foreign transaction fees?
These can increase or be added over time, so it's a good idea to open those emails from your credit card company when they announce changes and look for added fees.
Review Your Statement at the End of Every Month
Don’t simply pay your credit card bill when it arrives. Instead, review your statement with the following details in mind: total balance, number of purchases, and types of purchases. Also, review the bill for mistakes, such as purchases you didn’t make or an overcharge by a retailer.
It's easier to catch the mistake and get it resolved right away then have to go back and dispute an old charge. Manage your credit card bills when your spending is fresh on your mind.
Credit Card Safety and Security Comes First
Safety and security features give you peace of mind. While all modern credit cards are packed full of safety and security features, some go the extra mile. The Bank of America Travel Rewards credit card is known for its online security, while the Wells Fargo Cash Wise Visa credit card is the king of fraud protection.
Before opening a credit card account, have a clear idea of the security features that will protect you and your money.
Put it Away if it Gets You in Trouble
Let’s face it: credit cards aren’t for everyone. If you find yourself abusing the power, put your card away for the time being. Take this time to review what went wrong, how to adjust your approach in the future, and whether there’s another financial tool that makes more sense.
Credit cards are powerful, both in a positive and negative manner. It’s your job to harness the good, while avoiding the bad.
Talk to Your Financial Advisor
If you have concerns about using a credit card in retirement, ask your financial advisor for advice and guidance. They can help you create a plan for not only using a credit card but doing so in a manner that improves your finances.
It never hurts to get the opinion of a qualified and trusted advisor. This can help put your mind at ease, and that’s just what you need as your financial situation changes in retirement.