7 tips for maximizing the use of credit cards in retirement
From picking the right perks to securing a limit increase, here's everything retirees need to know about using plastic wisely
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When air traffic controller Jonathan Look retired seven years ago, he wanted to see the world.
So far, he’s visited Mexico, Laos, Cambodia, Thailand and Portugal. Next on his itinerary: Greece and Argentina. He also blogs about his travels at LifePart2.
When Look evaluates credit cards for his new, post-retirement life, he’s looking for rewards that will offset the cost of travel, a few travel perks, and no foreign transaction fees.
Look’s advice on credit cards in retirement: “Keep it simple,” he says. “You don’t need many, but you need a few.”
Searching out the best credit card to make the most of your – current or upcoming – retirement? Whether you’re an adventurous world traveler or a happy homebody, here are seven pointers for smart card use in retirement:
See related: Should you postpone retirement to pay off card debt?
7 tips for using credit cards wisely in retirement
1. Plan ahead: Retirees have more debt than their parents
Today’s 60-plus set is sailing toward retirement with a median of $41,000 in debt, according to the 2016 Survey of Consumer Finances – the most recent data available. In 1989, that figure was $9,329.
In addition, “what we’re seeing is an increase in credit card debt balance carried by older people,” says Lori Trawinski, CFP, director of finance and banking with the AARP Public Policy Institute.
Families headed by 65-to-74-year-olds carried an average of $5,500 in card debt in 2016, according to statistics from the Federal Reserve. That’s up from $2,300 in 1989.
No matter how good a deal you’re getting on points and rewards, you’re not making any money if you’re still carrying a balance on those cards.
Paying off balances is crucial if you want to squeeze the most out of those miles, rewards and cash back cards in your golden years.
- A balance transfer card with an introductory zero-interest offer would allow you to pay off your balance sooner without paying extra interest.
- Cards that offer long introductory periods along with rewards points or cash back include Capital One Quicksilver Cash Rewards Credit Card, Chase Freedom Unlimited and Blue Cash Everyday® Card from American Express.
- If you're interested in a balance transfer card but don't know where to start, read "9 things you should know about balance transfer cards."
2. Pick perks that align with your new lifestyle
When you’re retired, those freebies and discounts are gold.
For retiree Denis Gagnon, card perks that used to be considered “premium” are now his minimum baseline for a travel card – features like no foreign transaction fees, trip insurance and car rental insurance.
- One favorite card he uses: United MileagePlus Club Card.
- The card includes United Club lounge membership, along with two free checked bags, no foreign transaction fees, lost/delay baggage insurance, and trip cancellation/delay insurance.
- The annual fee is $450.
At home, Gagnon finds himself reaching for the Costco Anywhere Visa Card by Citi because it gives 4 percent cash back on eligible gas for the first $7,000 per year (then 1 percent thereafter), 3 percent on travel and restaurants and 2 percent on Costco purchases.
The card doesn’t charge an annual fee nor foreign transaction fees, but cardholders must maintain a Costco membership – which runs $60 annually.
Tip: Even if you’re slimming your credit card portfolio for retirement, keep a couple of cards from different card networks – especially if you travel abroad.
In the U.S., places that take Visa usually take Mastercard and vice versa. In other parts of the world, that’s not necessarily the case, says retired air traffic controller Jonathan Look, who uses his Barclaycard Arrival Plus World Elite Mastercard as an alternative to Visa.
3. Get a credit line increase before you retire
Credit lines are based on your credit score and your income. After you retire, that income will likely go down – or, for card issuers, it may be more difficult to verify, says Andy Byron, CFP, senior financial advisor and principal with HC Financial Advisors.
But also realize it’s a delicate balancing act, since too much “available credit” can sometimes scare potential lenders.
4. Use all your cards regularly
Good credit is like a muscle: Use it or lose it.
Retirees often have one of two reactions when it comes to credit cards: They either use them all the time or they don’t use them at all, says Keith Feinberg, CFP, financial adviser with Altfest Personal Wealth Management.
His advice: Avoid either extreme. Racking up balances isn’t healthy. And if card issuers see you haven’t used a card for a few months, they could close down the account and possibly drop the score.
Feinberg’s solution: Charge one small thing – even if it’s just a pack of gum – every month to keep the cards active.
Tip: Use features like text alerts to keep track of spending and avoid end-of-the-month surprises with bills.
5. Don’t let ‘balance creep’ steal your peace of mind
In retirement, annual income is often reduced or (at the very least), finite. So, staying out of debt becomes that much more critical.
At this stage, even with an investment account, “no investment is going to pay you 12 percent,” says Byron. So, rolling a card balance even on a relatively low 12 percent APR is a losing proposition for retirees.
Instead, the key to get the most out of credit cards in retirement is exactly what you learned in your working life: Treat cards as a convenient payment method, not a loan. Which means charging no more than you can afford to pay off every month.
The problem with that? You’re enjoying new activities and a new income, so it can be difficult to calibrate – especially at first.
See related: 6 tricks to juggle multiple credit card balances
6. Choose cards more carefully
In retirement, you’re less likely to want to close and open cards, says Byron. So, when you apply for a new credit card, it’s that much more important to make sure this is a card you want to keep.
This means that, more than ever, you want to do the research on your card and read the fine print before you apply.
New travel card? Ask yourself these questions:
- Do your favorite picks offer miles that are applicable or transferable to a carrier you favor?
- Does the card forgo foreign transaction fees?
- Does it offer other perks that will help in your travels – hotel rewards or discounts, help with lost luggage, delays or travel glitches?
One of Feinberg’s clients picked the Chase Freedom card because the quarterly points bonus on gas coincided with his snowbird trip south for the winter – and he banks those rewards for the year.
See related: Chase Freedom’s rotating categories
7. Talk to a financial advisor
You’re navigating an exciting new landscape. You’ve – hopefully – built up some assets and may have a retirement account or pension. And you may be planning trips, moves, new business ventures or a return to school.
A check-in with a financial planner can help you shore up any holes you might have in your plan and draft a budget that will keep you on track and out of trouble.
“One of the things that people can do is work with a financial planner,” says Trawinski. “Certified financial planners have a fiduciary duty to their clients.”
That checkup can give you an X-ray of your money situation, incomes, assets, estate planning and even the holes you need to plug (and some possible solutions). “All the aspects of your finances would be examined,” she says.
A financial planner can also help you create a budget for your new life and help you draft a savings plan for those unexpected expenses
The key for your cards: Once you know how much is coming in and what you can afford to spend, you will know just how much of that spending you can safely put on cards. And you’ll have the security of knowing you can pay it off in full every month.
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