An increasing number of retirees are carrying credit card balances

Recent data from the Federal Reserve shows that retired Americans and those approaching retirement are carrying increasingly large credit card balances.

The Fed reports that the percentage of older adults who don’t pay off their credit card balances each month continues to climb, making it the most common type of debt held by adults who are 50 years old and older.

While the younger end of that demographic tends to be the most in debt, the data show a sharp increase in 75-year-olds who continue to carry balances. That’s an alarming trend, according to Charlotte, N.C., financial advisor Marcus Sturdivant Sr.

“Carrying bad debt is never a good idea,” Sturdivant told Retirement Living. “The report shows that most of the people who are making these decisions to carry the debt are cognizant, some even print out the statements to review the fine print and total cost of making only the minimum payment. And while some seniors are financially stressed, not all who carry these types of debt are.”

But by carrying high-interest credit card balances, they soon could be. Inflation continues to make day-to-day living more costly, especially for people living mostly on retirement income and investments.

Healthcare is a big factor. While Medicare costs much less than private insurance plans, those premiums are also rising, albeit at a slower pace.

“This is where a health savings account could be a powerful tool,” Sturdivant said. “One of the primary reasons it was created was to bear the brunt of healthcare costs.”

Inadequate planning

Food prices have been rising since 2022, perhaps pushing many seniors to spend more than they normally would and turn to plastic to pay the higher grocery bills. And then, there could be the unexpected car repair bill. All too often, it goes on a credit card and increases the balance. Sturdivant said too many seniors haven’t planned adequately for these contingencies.

“Ideally, you want to enter retirement debt-free or with a very low percentage of your debt to your retirement income,” he said. “You also need an emergency fund. If you are retired, you may want to set aside six to 12 months’ worth of expenses. If you are working in a dual-income household, with different companies, three to six months as an emergency fund is a good goal.”

Sturdivant says a credit card can be a useful financial tool in retirement, but only if it is used responsibly. The right card could provide helpful cashback or other perks, but only if you pay off the balance each month. Otherwise, it’s simply a very high-interest loan.