Credit card debt is often seen as a problem for young people. But the reality is, people of all ages regularly accumulate debt on their credit cards – and it can be just as harmful at any stage of life.
Sometimes credit card debt cannot be fixed. But in situations where it can To be avoided, it’s best to do what you can to avoid retiring with credit card debt (or incurring new credit card debt after you’ve stopped working).
One Email a Day Could Save You Thousands
Expert tips and tricks delivered straight to your inbox that could help save you thousands of dollars. Register now for free access to our Personal Finance Boot Camp.
By submitting your email address, you consent to our sending you money advice as well as products and services which we believe may be of interest to you. You can unsubscribe anytime. Please read our privacy statement and terms and conditions.
Why retirees can’t afford to take on debt
Although a number of retirees work to some extent, many do not receive a salary at all. On the contrary, they depend on the income they receive from Social Security and, if they are lucky, on a savings plan or a pension.
Because of this, retirees often find themselves in a position where they don’t have much financial leeway in their budgets. And so, retirees who start their senior years with credit card debt, or accumulate it soon after, could really have a hard time paying it off.
Now here’s where things get problematic. Having too much credit card debt can damage your credit score. Of the many factors that go into calculating your credit score, your credit utilization rate is important. This ratio measures how much of your revolving credit you are using compared to what you have.
Once this ratio exceeds 30%, your credit score can take a hit. And if you’re stuck in a cycle of large credit card debt that you can’t shake, you could stay well above that 30% threshold for a long time.
If this happens and your credit score takes a hit, you might 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 have your free mortgage, you could still face costly repairs that you can’t make. But if your credit score goes down because you have too much credit card debt, you may not be approved for a loan. Likewise, you may need to purchase a new, retired vehicle if your old car lets you down. But if your credit score drops, you might not easily qualify for a car loan, or at least not affordable.
That is why you should try to avoid credit card debt during retirement. And if you’re nearing that stage and you already have credit card debt, do your best to pay it off. To do this, you may need to extend your career for a few years. But it’s worth the effort if it allows you to get out debt-free.
A better way to borrow in retirement
Even if you retire debt free, you may find yourself in a situation where you need to borrow money. But before you take your credit card, explore other options.
If you own your home, you may be able to borrow through a more affordable home equity loan or line of credit. Or a personal loan might make more sense, depending on your situation. Credit cards can 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 this scenario.