Should Retirees Use Credit Cards?

An older adult uses a credit card to make a payment on a smartphone in their living room.

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Here's what you need to know about credit card usage in retirement.

It's important to use credit cards wisely and try your best to only charge expenses that you can pay off by the time your bills come due. Unfortunately, many consumers fall into the trap of racking up credit card interest on their charges, which can ultimately lead to costly debt. And that extends to retirees.

If you're retired, you may be wondering if it's a good idea to use credit cards regularly, or if you're better off sticking to cash. And the answer is that it depends.

The pros and cons of credit cards

When it comes to credit card usage, retirees should aim to follow the same rules as working consumers -- aim to pay off those balances every month before interest accrues. If you're retired and you stick to that rule, then there's nothing wrong with using a credit card.

In fact, charging expenses on a credit card could work to your benefit in retirement. Say you're doing more travel now that you no longer have a job to report to all the time. If you rack up enough cash back or air miles, it could make your trips more affordable.

Similarly, many retirees live on a tight budget. This especially holds true for seniors who are limited to a Social Security check every month without additional sources of income. If you use your credit cards to pay for essentials like food, groceries, and medication, you'll put yourself in a position to snag reward points or cash back for the items you were already planning to purchase.

Those reward points could come in especially handy at times when Social Security raises are stingy -- something that, unfortunately, has occurred frequently in recent years. Because seniors haven't seen their benefits get much of a raise over the past decade, they've effectively been losing buying power as the cost of living has gone up. So in a way, credit cards can actually help seniors retain buying power by putting extra cash in their pockets for everyday purchases.

Of course, just as those who work have the potential to misuse their credit cards, retirees do, too. So you'll need to be careful not to go overboard with your credit card charges.

Again, this especially applies to seniors whose sole income source is Social Security. Often, those benefits don't increase much from year to year, and so if you rack up a credit card balance, you might really struggle to pay it off in the absence of extra income. While it is possible for seniors to boost their income by taking on a part-time job, sometimes, health issues can make working during retirement more difficult.

Occasionally, expenses creep up that need to be dealt with right away, and if you don't have the money in savings to cover them, you may have to whip out your credit cards instead. But barring unforeseen expenses, your goal should be to only charge those you can pay off by the time your bills come due. And if you set yourself up on a budget, you'll have an easier time knowing how much you can afford to charge each month.

The danger of credit card debt for retirees

Having too much credit card debt can damage your credit score, making it harder to borrow money when you need to. Some retirees might assume that their credit scores don't matter as much as they did when they were younger. But actually, you should aim to keep your score in good shape no matter your age or stage of life. You never know when you might need to borrow in a pinch, and wrecking your score could take that option off the table.

Furthermore, if you rack up credit card debt during retirement, you might struggle to pay it off in your lifetime. Then, your outstanding debts would need to be paid out of your estate before your assets are distributed to your heirs, leaving them with less. Sometimes, that situation is unavoidable. But the more savvy you are about credit card usage in retirement, the less likely you'll be in that position.

The bottom line

Credit cards can be a useful financial tool, whether you're working or retired. As long as you use your credit cards responsibly, there's no reason not to reap the benefits they offer in retirement.

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