Why Credit Card Debt Is Dangerous for Retirees, Too

by Maurie Backman | Published on Sept. 22, 2021

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It's a good idea to try to avoid credit card debt -- no matter your age.

Credit card debt is often pegged as a young person's problem. But in reality, people of all ages routinely rack up debt on their credit cards -- and it can be equally harmful at any stage of life.

Sometimes, credit card debt can't be helped. But in situations where it can be avoided, it's best to do what you can to not enter retirement with credit card debt (or take on new credit card debt once you've stopped working).

Why retirees can't afford debt

Though a number of retirees work in some capacity, many don't earn a paycheck at all. Rather, they're reliant on the income they collect from Social Security and, if they're lucky, a savings plan or a pension.

Because of this, retirees often find themselves in a position where they don't have much financial wiggle room in their budgets. And so retirees who kick off their senior years with credit card debt, or accrue it shortly after, might really struggle to pay it off.

Now, here's where things get problematic. Having too much credit card debt can cause credit score damage. Of the many factors that go into calculating your credit score, your credit utilization ratio is a big one. That ratio measures how much of your revolving credit you're using compared to how much you have available.

Once that ratio goes beyond 30%, your credit score can take a hit. And if you get stuck in a cycle of hefty credit card debt you can't shake, you might stay well above that 30% threshold for a long time.

If that happens, and your credit score takes a big hit, you may be out of luck the next time you need to borrow money. And you shouldn't assume that you won't need to borrow just because you're retired.

Even if you own your home mortgage free, you might still encounter costly repairs that you can't swing. But if your credit score drops because you're carrying too much credit card debt, you may not get approved for a loan. Similarly, you may need to get a new vehicle in retirement if your old car gives out on you. But if your credit score drops, you may not qualify easily for an auto loan, or at least not an affordable one.

That's why you should try to avoid credit card debt during retirement. And if you're nearing that milestone and have credit card debt already, do your best to pay it off. To do so, you may need to extend your career a few years. But it's worth making that effort if it allows you to retire debt free.

A better way to borrow in retirement

Even if you retire without debt, you may run into a situation where you need to borrow money. But before you grab your credit card, explore other solutions.

If you own your home outright, you may be able to borrow against it via a more affordable home equity loan or line of credit. Or a personal loan might make more sense, depending on your situation. Credit cards may be convenient, but the last thing you want is a nagging balance hanging over your head during retirement, so do what you can to avoid that scenario.

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