Money

Why you must have at least one credit card BEFORE age 60... it's absolutely vital

‍Credit card companies won’t leave us alone – until we hit 60! Learn the surprising reason to secure credit before retirement and the wealth-building perks you could miss out on if you don’t.

By Nicole Pedersen-McKinnon

You might consider this controversial, but I like credit cards as part of a savvy personal finance strategy.

We’ll get into all the (lucrative) reasons plastic CAN be fantastic – and the simple ways to avoid the traps – in just a moment.

But, first, you need to realise 3 things.

1. If you hit 60 without a credit card, you’re unlikely to ever get one.

2. If you close a credit card after 60, you may never be issued credit again.

3. If you even just reduce a credit card limit after 60, you’ll probably kiss goodbye to that level of limit… forever.

Let’s look at why.

Why credit card companies don’t want you after 60

Credit card application criteria have toughened up significantly in recent years.

The biggest tightening has been the introduction of what I call the “3-years-to-clear” rule.

This quite simply means you must have sufficient surplus income after all your expenses, including your mortgage repayments (which will be far higher now), to pay off the full amount of your credit card within – yup – 36 months.

But here’s the kicker: it’s not the full amount of money you owe at any given time, but the full amount of your limit.

Carry over no debt from month to month? Cleverly incurring no interest?

No matter – you won’t get approved for any card limit that you can’t entirely clear in 3 years.

(Note this is also how much of your income is ruled out based on any credit card limits when it comes to applying for a new mortgage – so large limits could cost you a big chunk of a potential new home loan, if you are still in the market for one.)

Earned versus investment income

But there’s an even bigger problem with credit card eligibility as you approach retirement, that may see you denied credit altogether: credit card companies value ‘earned’ or employment income far more than investment income.

In fact, regardless of how much income you make from investments in or outside of super, or your amount of available funds, some card providers may not even entertain your application after you stop work.

So why do I say you need at least one credit card to your name prior to then… I’m estimating around age 60?

(Top tip: Each party in a relationship needs one – credit cards can only be held in one name. Should the only card holder die, if they are the higher earner or indeed everyone has stopped earning, the remaining spouse will not be able to replace it.)

The powerful perks of credit cards to pre- and post-retirees

There are a raft of ways credit cards can hone and help your finances. Here goes…

1. Bring your mortgage-freedom date forward for free

Principal to the potential power of a credit card to a personal finance strategy is that famous 55 days – or even up to 62 days – interest-free.

If you think about it, that is a huge amount of time to be able to use someone else’s money… for free.

If you have a home loan, it’s also a massive possible debt-busting tool: you can live off a credit card and the bank’s money for the whole month while you sit your salary alongside your loan… until the very day the credit card bill is due.

Do this right and you could save tens of thousands of dollars on your mortgage and shave years off your time in debt: here’s how.

This is the result only if you’ve incurred no credit card interest but cannily deployed one for debt-reduction purposes.

2. Earn frequent flyer points for cut-price travel

Depending on the credit card, you may even collect more than one frequent flyer point for every dollar you spend via the card. Often cards have direct tie ups with either of the main Australian frequent flyer schemes: Virgin’s Velocity Frequent Flyers or Qantas Frequent Flyers.

Or cards might have their own rewards programs that you are usually able to convert into frequent flyer points for one of the airlines.

While you do have to watch the annual fees on any rewards cards, simply flushing your expenses through such a card could see you flying for a fraction of the usual cost.

More rewards points hacks:

And that’s appealing indeed when finally you have the time, but perhaps not the financial resources, to go up, up and away.

Speaking of which…

3. Enjoy travel insurance at zero cost

Another huge perk of credit cards is complimentary travel insurance. You usually need to spend a certain amount for the trip itself on the card, to trigger the insurance.

Be sure to check carefully how much (and if it’s per person). And be particularly vigilant if you book flights or another part of a trip through frequent flyers… make sure you have incurred enough holiday cost on the card to qualify.

Or course, always read the fine print on payout limits and exclusions.

But this type of automatic and ‘blanket’ travel cover can be extra good as you get older, and perhaps develop some medical conditions. You might not need to make any disclosure of those conditions (be sure).

Some policies cover you come-what-may under a certain age, often 80, after which any individual travel insurance policy can get expensive indeed.

For as long as you are still able to get it, free travel insurance is a gift.

There’s an additional insurance incentive, too…

4. Get insurance for your purchases

A thing called complimentary purchase protection insurance (or similar) is designed to insure certain items you buy on a credit card, if they are stolen, accidentally damaged or permanently lost.

If a purchase is eligible (again the fineprint on your particular credit card will tell you), the item may be covered for, typically, 90 days.

Which may work out an important bit of protection – consider a new iPhone that you accidentally drop.

Generally, there are limits and sub-limits that apply per claim and per year, often lower sub-limits for items such as watches, jewellery and art.

You may also need to pay an excess, depending on the policy details. Always check the terms and conditions and if you’re still not sure, ring the credit card company and ask.

5. Pay 0% on any niggly card debt – and clear it

And now for – in my opinion – the biggest bonus of credit cards when it comes to money management…

I call 0% balance transfer credit cards “get-out-of-jail free” cards. And they really are tremendous – if you know how to use them.

Let’s say you have an unfortunate legacy balance that you have had to carry over on a credit card. Or perhaps you want to take a trip that you don’t have the money for quite yet.

You may have the option to transfer this balance to an entirely new credit card with an entirely new institution and pay no interest on it for a set period.

Luring your business across is precisely why banks offer this great opportunity but know that it’s the transferred balance, and the transferred balance only, that will be interest-free.

So, the first usage trap of these cards is precisely that: usage. Any new spending will incur an eye-watering interest rate, so smart money operators simply transfer the old credit card balance to the new card (under the terms of opening the new 0% balance transfer credit card), then stick the new card in a drawer and never use it. You simply pay down the old debt without incurring any interest fees and that’s that.

Remember you should still have your original credit card to keep using (with all the budget-boosting bells-and-whistles I have explained above).

But there’s one more trap: what’s called the “revert interest rate”. It’s the rate that kicks in after the agreed 0% interest-free period (usually 36 months) and it’s usually significantly higher than other competitive rates available on the market.

So if you still have debt at the end of the interest-free period the revert interest rate will hurt massively.

The answer is… don’t.

If you divide your transferred balance by the number of 0% interest months available and pay off this amount each month without fail, you will slowly, gently discharge the debt at absolutely no extra cost.

The one big caveat to all of this card love?

Naturally there’s a big – nay, huge – caveat to all of the above…

If you simply do not trust yourself with credit and you can’t resist the temptation to spend beyond your means when the potential is there to do so, don’t get one.

None of the perks are worth it. All a credit card will do is drive your finances backwards.

But if you can trust yourself to be disciplined, there are few products that carry so many extra financial sweeteners as a credit card.

So think about whether one suits you… preferably, before you turn 60.

Feature image: iStock/andreswd

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

_{This article reflects the opinions and experiences of the author and is intended as a guide only. Your individual experience with credit cards may differ from those expressed in this article. This article reflects the views and experience of the author and not necessarily the views of Citro. It contains general information only and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their personal circumstances before making any financial decisions.}

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