‘I don’t use cash’: I’m 70 and my home is paid off. I live off Social Security, and I use a credit card for all my spending. Is that risky?

By Quentin Fottrell

‘My concern is that if my debit card is stolen and there are fraudulent charges, the money goes straight out of my checking account’

Dear Quentins,

I am now 70 years old and partially disabled. I am fully retired, living on Social Security and Supplemental Security Income. Obviously, my income is limited.

I am financially stable. I have no debt of any kind. I have my house (boat) free and clean, and no payments for my car.

I’ve always been reluctant to pay for something using a debit card. My concern is that if my debit card is stolen and there are fraudulent charges, the money goes right out of my checking account. Even if I report the theft, it may take some time to get the money back.

As a result, I don’t use cash. I always pay by credit card rather than debit card. I don’t have a credit card balance with me. I budget my money carefully and pay all my credit card bills in full each month.

My question: Are there any downsides to using my credit card in my current limited financial situation?

Retired

Dear Pensioner,

With convenience comes great responsibility — and risk.

There’s a big difference between living on credit and using a credit card for your purchases. You fall into the latter category, and you pay off your card each month while accumulating rewards, air miles and other perks. Most debit cards do not offer rewards.

Credit card companies make returns easy too, and you have more fraud protection with this card. For example, nearly every credit card on the market offers “zero fraud liability” fraudulent fees, meaning you won’t pay a dime for it.

Credit reporting company Experian recommends that you set up an automatic payment each month to pay off your credit card in full, assuming you have enough money in your bank account to cover it, as well as text alerts when you’re approaching your spending limit.

I’d encourage you to take advantage of all the credit card perks, but also have at least six months of emergency savings in case something unexpected happens, like damage to your home or medical bills you have to pay out of pocket. . One bad event can throw your life upside down.

No one plans to get stuck in a cycle of credit card debt. It occurs slowly or suddenly, and often through impulsive spending. The risks are big: The average credit card interest rate is currently at 20.3%, the highest recorded by CreditCards.com.

Those interest rates are good motivation to stay on top of your monthly bills. Credit cards help you build a credit score, but you should also aim to keep your credit card utilization rate – that is, your balance as a percentage of your credit card limit – low.

Some people enjoy credit card shuffling – opening a new credit card for a sign-in bonus, and closing the card before the next annual fee kicks in. When you open the card, the bureaus do a “hard check” on your credit, which can hurt your credit score.

My colleague Leslie Albrecht recently wrote a Financial Face-off column comparing buy now, pay later (BNPL) with a credit card, and opting for the latter because of the high interest rates for many BNPL loans, and the lack of protection provided by BNPL compared to by credit card.

But Ted Rossman, a senior industry analyst at Bankrate.com, also has a timely warning about the risks attached to credit cards: “There’s a saying in the industry that credit cards are like electrical tools. They can be very useful or they can be harmful.”

He wasn’t wrong: If you make the average monthly minimum payment of $26.67 on a credit card balance of $1,000 at 20% interest, it will take you more than 9.5 years to pay off the capital and interest.

Adjust your credit card spending with your lifestyle. Choose a card that offers cash back on purchases at supermarkets and stores where you shop regularly. With the economic outlook uncertain, some credit card companies are showing signs of tightening their belts (i.e., lowering their limits).

That is a great motivator for all of us to do the same.

You can email The Moneyist with your coronavirus-related financial and ethics questions at qf[email protected], and follow Quentin Fottrell on Twitter

Check out Moneyist’s private Facebook group, where we look for answers to life’s most difficult money problems. Readers write to me with all kinds of dilemmas. Post your questions, let me know what you’d like to know more, or weigh in in the latest Moneyist column.

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More from Quentin Fottrell:

My boyfriend wants me to move into his house and pay the rent. I suggest only paying for utilities and groceries. What do I have to do?

My dinner date ‘forgot’ his wallet and took his tax receipt. Should I call him out for being stingy?

My boyfriend lives in my house with my 2 kids, but refuses to pay rent or contribute to food and utility bills. What’s my next step?

-Quentin Fottrell

(END) Dow Jones Newswires

22-02-23 1455ET

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