Credit cards and loans in retirement
Credit cards and loans can be an effective way of managing your cash flow, or paying for large purchases and spreading the cost. However, it's important to remember that you are often paying someone else interest to lend you this money, so you need to try and pay it off as quickly as you can.
Can I get a loan in later life?
It becomes harder as you reach later life to get credit for things like personal loans, but it's not impossible. Make sure that you understand all of your options and be sensible about your requirements – do you really need one? If the answer is yes, here are some tips to help point you in the right direction:
- Understand the types of loan available to you
A secured loan uses your property as security and an unsecured loan does not – so there's no risk to your home if you cannot pay an unsecured loan back. Ask yourself if you can afford to take risks like this as you get older.
- Talk to a reputable lender
Start exploring your options by speaking to a lender who you already have an established relationship with, like your bank. Unfortunately, there are some disreputable companies like loan sharks who prey on older people, so if an offer seems too good to be true, it probably is.
- Do your homework
It sounds obvious, but if you've done your research and you're confident in your decision, you're less likely to have regrets later on. If in doubt, ask for a second opinion and always be sure of what you're signing up to.
If you need a lot of money and you own your own home, you might like to consider equity release. As always, we recommend speaking to a professional adviser when considering your financial options for the future. You can find a list of impartial advisers in your local area on thepfs.org or unbiased.co.uk.
What about credit cards?
It can be more difficult to get a credit card when you have retired as you are likely to have a lower, fixed income. However it's not impossible. And, unlike mortgage companies that often impose age limits on new customers, credit card companies look at your income levels rather than your age. You might not always be able to get access to the best deals, but it's worth taking a look around and talking to you bank about what they could offer you.
What if want to clear the debts on my credit card?
Look for 0% deals
Don't be afraid to move credit card providers regularly. This could save you a fortune over a long period of time, with many providers offering 0% deals on balance transfers.
Pay more than the monthly repayments
When you take out a credit card, you're usually given a set minimum monthly repayment figure. Don't be fooled into thinking this will help you to pay off your balance quickly. It's been worked out for a reason – to keep you paying the lender for longer – and can even result in a lower credit rating later on.
Set up a Direct Debit with your bank
If you have a new credit card, you need to ensure that payments will be collected from your bank automatically each month. You can pay off a set amount of your choosing (such as more than the minimum payment) or you can set it to take the full amount every month. That way, the debt can't creep up and surprise you with late fees or missed payments later on.
Look for other good deals
Some credit cards have other benefits such as Saga's no foreign currency fees. Other credit companies offer extra perks like lower ATM fees, cashback or travel reward points. But whatever the deal is, weigh up the value of what you're getting with its overall benefits. And remember, securing a lower interest rate is key to managing your credit card debt.
At the end of the day, a credit card can be a useful tool to help you live on a fixed budget, but only if you pay it off promptly – something that becomes harder to do once you stop working. Plus late payments can affect your credit score.