I’m a Retirement Expert: 5 Things Retirees Should Never Use a Credit Card To Buy

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An estimated 46% of U.S. households have credit card debt, according to the 2022 Survey of Consumer Finances. The average household owes $7,226 in credit card debt and pays an average of $181 a month to keep up with their minimum required payments.

While credit cards can be useful, they can also lead to a long-term cycle of debt. For people in retirement, especially those living on a fixed income, it might be better to steer clear of credit cards altogether. If that’s not possible, there are at least a few things retirees should never use a credit card to buy.

GOBankingRates spoke with Jason B. Ball, CFP, founder of Jason’s Fin Tips, about what he thinks retirees should avoid buying with credit cards.

Also see the five myths about debt that nobody should believe in 2024.

Medical Bills

“Medical bills can sneak up on you, and relying on high-interest credit cards to cover these costs is a recipe for disaster,” Ball said. “As a CFP, I’ve seen too many retirees overwhelmed by debt from essential health services.”

Medical expenses are hard to avoid. In 2020, roughly 3.9 million adults ages 65 and older had unpaid medical debt totaling an average of $13,800 per person, according to the Consumer Financial Protection Bureau.

But there are better ways to pay than using a credit card.

“Consider negotiat[ing] payment plans with healthcare providers or use health savings accounts (HSAs) if available,” Ball said. “This strategy avoids those crippling interest charges and keeps your finances healthier.”

HSAs are primarily designed for medical expenses. With one, you can withdraw money to cover qualified medical expenses tax-free. You can also draw from the account before the age of 65, but you’ll get hit with a 20% tax penalty if you use the money for nonmedical expenses. If you wait to withdraw from the account until you’re 65 or older, you won’t have to pay this steep penalty — even if your withdrawals aren’t for medical purposes.

Home Renovations and Repairs

Trying to pay for home renovations with a credit card is risky for several reasons. Not only can renovations cost more than you expected, but interest charges can really rack up.

“I’ve encountered situations where home renovations resulted in far more debt that was initially planned. It’s far better to save up or seek low-interest home equity loans or lines of credit,” Ball said. “This approach ensures your home improvements don’t compromise your financial stability.”

Before starting any home improvement project, you might want to add a bit of a financial cushion in case the project ends up going over your initial budget. You can also start small so as to avoid spending too much money. It’s much easier to spend more later than it is to pay off high-interest debts because you went overboard.

Cars

“Financing a new car with a credit card? That’s a fast track to hefty monthly payments and high interest rates, especially in today’s car market,” Ball said.

According to Kelley Blue Book, earlier this year, an average new car cost over $47,000. The average interest rate on a new car is 6.73%, per CNN. As for used vehicles, the average interest rate is 11.91%.

On average, credit cards have much higher interest rates than auto loans. But even auto loans can lead to financial strain.

“If possible, it’s often more prudent to opt for reliable used cars, save up to buy outright, or wait until interest rates and car prices come down,” Ball said. “This way, you avoid the long-term financial strain and keep your budget intact.”

Vacations or Travel

Travel is one of the most popular activities — if not the most popular activity — for retirees. According to a 2023 Transamerica Center for Retirement Studies survey, 60% of retirees dream of traveling once they’re out of the workforce.

But travel can be expensive. Kiplinger estimated that retirees spend anywhere from $10,000 to $50,000 on their yearly travel expenses. Even those who end up spending much less should still avoid using credit cards to fund their trip.

“I always recommend saving up for travel expenses,” Ball said. “Enjoy your adventures debt-free and keep those memories sweet.”

Groceries

Ball also suggested that retirees avoid using credit to pay for everyday groceries. “Stick to your regular income or savings for these purchases,” he said.

Of course, if you’re retired and know without question that you can pay off your monthly credit card bill before it incurs interest, then go ahead and swipe your card. Just make sure you’re benefiting from doing so — such as through miles or other rewards.

Honorable Mentions

Here are a few other things retirees might want to avoid using their credit cards for.

• Everyday expenses like utilities, personal care or gas
• Luxury items
• Paying off other loans
• Impulse purchases

It’s far too easy to accumulate debt, so practice mindful spending habits and leave the credit cards at home — unless you’re facing an emergency or have a clear plan for paying off your balance each month.

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