An estimated 46% of U.S. households have credit card debt, according to the 2022 Consumer Finance Survey. The average household has $7,226 in credit card debt and pays an average of $181 per month to make the required minimum payments.
While credit cards can be useful, they can also lead to a long-term cycle of debt. For retirees, especially those on fixed incomes, it may be better to avoid credit cards altogether. If that’s not possible, there are at least some things retirees should never buy with a credit card.
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GOBankingRates spoke with Jason B. Ball, CFP, founder of Jason’s Fin Tips, about what purchases he thinks retirees should avoid making with credit cards.
Also read the five myths about debt that no one should believe in 2024.
Medical bills
“Medical bills can surprise you, and relying on high-interest credit cards to cover those costs is a recipe for disaster,” Ball said. “As a CFP, I’ve seen too many retirees overwhelmed with debt for essential health care services.”
Medical expenses are hard to avoid. According to the Consumer Financial Protection Bureau, in 2020, about 3.9 million adults ages 65 and older had unpaid medical debt averaging $13,800 per person.
However, there are better payment options than using a credit card.
“Consider negotiating payment plans with healthcare providers or using health savings accounts (HSAs) if available. This strategy will avoid those crippling interest charges and ensure a healthier financial position.”
HSAs are primarily for medical expenses. An HSA lets you withdraw money to cover qualified medical expenses tax-free. You can also withdraw from the account before age 65, but you’ll have to pay a 20% tax penalty if you use the money for nonmedical expenses. If you wait until you’re 65 or older to withdraw from the account, you won’t have to pay this hefty penalty — even if your withdrawals aren’t for medical purposes.
For you: Cutting spending for retirement? Here’s the number 1 thing you should get rid of first
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 expected, but the interest rates can add up significantly.
“I have seen situations where renovations resulted in much more debt than originally planned. It is much better to save or apply for low-interest home equity loans or lines of credit,” Ball said. “This approach ensures that your renovations do not threaten your financial stability.”
Before you start any home improvement project, you may want to build up a small financial cushion in case the project exceeds your initial budget. You may also want to start small to avoid overspending. It’s much easier to spend more later than to pay off high-interest debt because you overspent.
Cars
“Financing a new car with a credit card quickly leads to high monthly payments and high interest rates, especially in today’s auto market,” Ball said.
According to Kelley Blue Book, the average new car cost over $47,000 at the beginning of the year. The average interest rate for a new car is 6.73%, according to CNN. For used cars, the average interest rate is 11.91%.
On average, interest rates on credit cards are much higher than on car loans. But car loans can also lead to financial burdens.
“When possible, it’s often wiser to opt for reliable used cars, save up to buy outright, or wait until interest rates and car prices drop,” Ball said. “This way, you avoid the long-term financial burden and save your budget.”
Holiday or travel
Traveling is one of the most popular activities—if not the most popular—for retirees. According to a 2023 survey by the Transamerica Center for Retirement Studies, 60% of retirees dream of traveling when they’re no longer working.
But travel can be expensive. Kiplinger estimates that retirees spend between $10,000 and $50,000 annually on travel expenses. Even those who end up spending much less should avoid using credit cards to finance their travel.
“I always recommend saving for travel expenses,” Ball said. “Enjoy your adventures without debt and keep great memories.”
Groceries
Ball also advised retirees not to pay for their daily groceries on credit. “Stick to your regular income or savings for these purchases,” he said.
If you’re retired and know without question that you can pay off your monthly credit card bill before interest accrues, then of course you can still use your card. Just make sure you get the most out of it – for example, through miles or other rewards.
Honorable Mentions
Here are some other things retirees may not want to use their credit cards for.
It’s all too easy to get into debt, so be careful about your spending habits and leave your credit cards at home unless you’re in dire straits or have a clear plan to pay off your balance each month.
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This article originally appeared on GOBankingRates.com: I’m a Retirement Expert: 5 Things Retirees Should Never Buy With a Credit Card
