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Credit cards for seniors: Retire the debt before you do

Keep the cards. Pitch the debt.

When it comes to credit cards, the advice for seniors is simple: pay off those balances. No retiree wants to be weighted down with card debt.

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"As always, an admirable goal is to get rid of credit card debt," says Laura A. Walsh, a certified financial planner at Lifespan Financial Strategies Inc. in Weston, Fla.

"A lot of people will hold off retiring to pay off the credit card debt. That's a wonderful strategy. You retire the debt and then you retire."

But that doesn't mean you retire the cards. To keep your credit record active and healthy you'll want to keep a couple of credit cards, use them regularly, and pay off your bills each month like clockwork.

Keep a card, lose the debt
Trying to cut the plastic out of your life cold turkey is just not practical.

"You cannot live in the United States without a credit card," says Michael Stein, a retired certified financial planner and author of The Prosperous Retirement.

What if you want to shop online or rent a car? What happens if an unexpected expense pops up and you need to pay a big bill quickly?

Plus, you want to keep your credit file active. At the very least use a credit card for dinners out or weekly groceries. It's also a good idea for married seniors to have individual credit card accounts. That way both spouses build up a strong credit profile.

"Get one in your own name at this point," Walsh says. "Alternate between restaurants each month to keep it going."

Resist signing on for all kinds of new credit cards.

"One of the problems with American society is every week it seems I get an offer for a new credit card," Stein says. "I could have 22 credit cards with lines of credit that just sink me."

Charge within your means
Many seniors may be tempted to turn to plastic as they adjust to a more limited retirement budget.

"It's easy to talk about making retirement a smooth flow. It's not so easy when you go through it," says Jay Seaton, chief operating officer at Consumer Credit Counseling Service of Central Ohio. "They're retired. They're living on something that really is fixed. You just can't continue to spend as you did before."

A key sign that there's a problem is when a monthly card balance keeps going up despite regular payments.

"There ought to be alarm bells on the credit card," Stein says.

Credit card debt has a way of creeping up. Some seniors may rack up card debt even as they scale back their lifestyle. Many retirees leave their empty-nest homes and move into smaller living spaces. They decorate the new place and figure they'll pay off their hefty charge bills when the old house sells. The old house sells for less than expected and they're stuck with steep credit card bills.

Some seniors also go to great lengths to help their adult children. They'll pay off a daughter's college loans or pay for a son's first home. They'll decide that they're going to set aside $250,000 for their heirs. They'll do all this even if it means reaching for a credit card to help make their own ends meet.

Don't disturb the nest egg
The last thing seniors faced with a big credit card balance should do is pull money from a tax-deferred retirement account. Raiding a $300,000 401(k) account to snuff out $50,000 of credit card debt is NOT a good idea.

"They miss the big point that $50,000 is going to be $80,000 when it comes out because of the taxes, and they've compromised their retirement," Walsh says.

Some seniors may be able to pay off card debt in one fell swoop by cashing in a stock or bond. Others will need to set up a strict, monthly repayment schedule that goes well beyond the minimum monthly payment.

Transferring a big card balance to a credit card with a lower interest rate will save you some money. This chart from Bankrate.com lists the best card deals for people who carry a balance.

Getting a handle on what caused the card debt in the first place may be just as important as paying down the debt itself. Who wants to spend their golden years worrying about persistent card debt?

Senior-friendly credit cards
There are also plenty of seniors out there who are debt-free and worry-free. A credit card is a convenient way to pay for travel and whatever adventures they choose to try. They never pay a penny of interest.

This chart from Bankrate.com lists the best credit cards for people who pay off their balances each month.

Seniors that frequently pay with credit cards may want to sign on for rebate cards. They could earn everything from cash back to frequent flier miles. This chart from Bankrate.com lists the top rebate cards.

Lots of people in the early stages of retirement may find themselves reaching for the plastic. They're healthy. They've worked hard their whole lives. They've saved plenty of money. And now it's time to play.

"People have the elation of suddenly being released from the work schedule. They have the frustrated dreams of a lifetime," Stein says.

"And they've got more money in the bank than they've ever had in a lifetime."

As long as they have the money retirees should feel free to play and charge away.

"I call the early phase of retirement a second childhood without parental supervision," Stein says.

"It can be the best time of your life."

 

 
-- Posted: Feb. 5, 2001
   

 

 
 

 

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