ByCATEY HILL
Credit-card spending is ticking back up among seniors but is it a good idea?
According to a new survey by Scottrade, an online investing firm, retirees are swiping their cards more often and loosening their purse strings when it comes to entertainment and travel. The results raise the issue of how seniors should make the most of their credit card in retirement.
For those that have debt, the first step should be getting rid of it. The interest payments on those cards can cost thousands of dollars - a big concern especially for those living on a fixed income and the fees can add up, say financial advisors.
Retirees with credit card debt who can t pay it off immediately should also make sure they have the right credit cards. If they have a high APR or annual fees, they should visit a website like creditcards.com to shop for competitive offers, says Adam Miller, a certified financial planner at ElderAdo Financial in Montrose, Colo. Retirees may also want to check out BillShrink.com, which in addition to recommending a suitable lower interest rate credit card, will also suggest other ways to reduce costs, based on a questionnaire the consumer must complete.
On the other hand, retirees without credit card debt and who can continue to pay off the balance each month can use cards to their advantage. The biggest perks of course tend to be the rewards, including cash-back and travel. Retirees are unique and should look for a card that works for their lifestyle, says Curtis Arnold, the chief executive of CardRatings.com, a site that aggregates credit card deals. He says that rewards programs have gotten more competitive and have better offers, especially for those with really good credit. Although there are a few reward credit cards targeted specifically to retirees, these do not necessarily offer the best rewards.
Here are some rules for retirees without credit card debt who want to get the most out of their rewards credit cards.
1. Pay off the balance in full and on time each month. This is an especially important point with rewards cards, which often have higher interest rates than standard cards, says Arnold.
2. Limit the number of cards you apply for at one time. Numerous applications in a short period of time can hurt your credit score.
3. Consider cards that reward you for buying things you tend to spend on already. For example, a person who spends a lot on groceries might want to get a card that gives a high rate of cash back on grocery purchases. Sites including NerdWallet.com will match a consumer with the right card based on a lifestyle questionnaire.
4. Watch out for annual fees. If the card has an annual fee, you should make sure the rewards that the issuer is offering are worth the size of the fee.
5. Beware of complicated or changing rewards structures. Can you keep up with the rules? That is the question you should ask yourself about a card that gives cash back in different amounts depending on how high your spending goes, or if it gives rewards in rotating categories depending on the month.
6. Be careful of capped rewards. Many cards will put a cap on either the total rewards a consumer can get or the amount of rewards a consumer can get at a certain rate. For example, a cash-back rewards card may offer 5% cash back on some purchases, but will cap the total amount of cash a consumer will get back at this rate.
7. Think twice about travel rewards cards. Many travel rewards cards make it hard to earn and redeem the rewards on their cards, and they often carry an annual fee. About nine times out of ten, you will usually come out ahead with a cash reward card, says Arnold. That s because the cash reward cards tend to have fewer redemption hassles, he adds. One option is looking into rewards cards from an airline or hotel you use frequently, suggests CardHub.com CEO Odysseas Papadimitriou. Do you travel internationally often? Unlike most other major credit cards, Capitol One card doesn t charge foreign transaction fees.
Here is a look at some retiree-friendly cards that financial advisors and credit card analysts like. For the many retirees on a fixed income, or for those that want a little extra cash in their wallets, there are some good cash-back cards. For retirees who want to pad their nest egg, there s a card that will boost your savings, and with travel and entertainment spending on the rise among seniors, others with good travel and restaurant rewards.
All have no annual fees -- except for Capitol One Venture, which has a $59 fee (waived in first year), and Starwood Preferred Guest, which has a $45 fee (waived in first year)
| Card | Good for Retirees Who Want: | Rewards | APR | Advantages | Potential pitfalls |
|---|---|---|---|---|---|
| Chase Freedom | Cash back | Unlimited 1% cash back on all purchases and 4% additional cash back on rotating categories of purchases up to a limit | Introductory offer of 0% for 6 months, then up to 22.99% | Easy way to earn cash back (at least at the 1% level) without having to spend a lot | At the 4% cash back level, the rewards structure may be hard to follow High APR |
| Blue Cash from American Express | Cash back | Unlimited 0.5% cash back on all purchases and 1% supermarket, drug store and gas station purchases when spending is less than $6,500/yr Unlimited 1.25% cash back on all purchases and 5% cash back on grocery store, gas station and supermarket purchases when spending is more than $6,500/yr | 0% intro APR for 6 months; after that, a variable rate up to 21.24%. | Gives a lot of cash back to people who spend more than $6,500 on their credit card, especially those that spend heavily at grocery stores, gas stations and drug stores | Cash back rate not as good for retirees who do not spend more than $6,500 per year High APR |
| PenFed CashBack | Cash back | 1% cash back from all purchases, 5% cash back from gas purchases paid at the pump, 2% on supermarket purchases up to $50,000 annual limit | From 13.99% to 17.99% | Easy way to earn cash back Lower APR than many cash-back cards | Must be a member of the PenFed Credit Union to get the card, which is mostly limited to members of the military, government employees and volunteers or employees of the Red Cross. * PenFed will extend membership to people who join the National Military Family Association (donation of $20 required) and who opens a savings account at Pen Fed ($5 minimum) |
| Fidelity Retirement Rewards | To add to their nest egg | Earn unlimited 2% on all purchases; money contributed automatically to Fidelity brokerage account | 13.99% | One of the best returns *Good for easily building up a nest egg *Lower APR than many cash-back cards | Must have or open a Fidelity brokerage account |
| Citi Forward | Dine out often | Earn 5 reward points for purchases at restaurants, books, movies and music; 1 reward point for other purchase for a maximum of 75,000 points a year | Introductory offer of 0% for up to 7 months, then up to 19.99% | Dining out and some entertainment purchases earn a lot of points | Points must be redeemed for something in the Citi Thank You points store |
| Capitol One Venture | Travel often | Earn unlimited 2 miles per dollar on every purchase 10,000 bonus miles if you spend $1,000 in first three months of having card | 13.9% up to 24.9% | No foreign transaction fees - great for international travelers Unlimited miles Earn miles on all purchases | Those who do not travel frequently will not benefit from this card High APR and $59 annual fee (waived in first year) |
| Starwood Preferred Guest | Travel often, especially to Starwood hotels and resorts | Earn 1 point for each dollar spent, redeemable at Starwood properties or for 30+ airlines 10,000 bonus points with first purchase | Introductory offer of 2.9% APR for 6 months; after that, variable rate, currently 15.24% | One of the least restrictive redemption programs Earn double points for staying at many Starwood resorts | Those who do not frequent Starwood properties will not benefit as much $45 annual fee (waived in first year). |
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