Reducing debt is especially important for workers who are nearing retirement. Experts say: give credit cards priority.
U.S. consumers are on pace to rack up another $55 billion-plus in credit card debt in 2015, according to Card Hub. And for many, the weight of revolving credit card balances can scuttle retirement planning.
“There are some baby boomers who are putting off retirement because of the debt they are holding," says Rosa Maymi, manager of programs department at AARP.
In fact, 31% of retirees still feel they have a problem with debt, according to the 2015 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI). The most common burdens? Mortgages, credit card debt, and car loans.
If you have credit card debt and are in or near retirement, juggling these budgetary challenges can be tricky. So, do you save for retirement or pay down debt?
"Paying down debt is the biggest return on investment you can get. Prioritizing paying down sooner will mean you're wasting less of your retirement savings later on," says Card Hub spokesperson Jill Gonzalez.
Consider these strategies to help pay off your credit card debt and then keep your balance sheet clean as you push into your retirement years.
Attribute the bulk of your allotted monthly debt payment to the revolving balance with the highest interest rate, while making only the minimum payments on the rest of your debts.
Once the most expensive balance is paid off, repeat with the second most costly, and so on, explains Gonzalez.
Once you've paid off the credit card debt, consider using cold, hard cash for any expenses less than $300.
"Research shows that you'll spend almost 20% less, on average, when you pay with good, old-fashioned dollars than when you use credit cards. And you won't feel one bit deprived," says Pamela Yellen, financial security expert and author of The Bank on Yourself Revolution.
Even if you pay off your credit card statement in full each month (kudos to you), it may be worth examining what card you use. Perks are available—from airline miles to points in a brokerage account. Card Hub provides a handy report on “The Best Credit Cards for Every Stage of Life.” For example, for those nearing retirement, one credit card allows consumers to save with a 2% cash reward that gets deposited directly into an IRA.
Consumers looking to boost their investing accounts can consider the TD Ameritrade Client Rewards Card*, a high-rewards credit card with flexible redemption options. TD Ameritrade Client Rewards Card holders earn 1.5% rewards on purchases, redeemable for merchandise, gift cards, statement credits, cash, and travel. Cardholders also have the option to earn an extra 10% in rewards by redeeming their points as cash into an eligible TD Ameritrade account.
When it comes to credit card perks, the choices run the gamut, but it really all comes down to personal preference.
"As a boomer, my favorite type of credit card is one that lets you trade in points for cash or for air travel and hotel stays. These cards should only be used for the convenience and the points, and it's critical to pay the bill in full when it comes due every month," concludes Yellen.
Manage your money with a debit card, free ATM withdrawals, and free online bill pay. Did you catch that? Free.
The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
*Credit card is issued by TD Bank, N.A. TD Ameritrade and TD Bank are affiliated through their parent companies.
TD Ameritrade and the above named firms are separate and unaffiliated firms, that are not responsible for each other’s services or policies.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.