Credit Card: Can you use it to save for retirement? 5 key things to know | Mint
Source: Live Mint
A credit card is a financial instrument that helps you streamline your financial health by consolidating expenses and debt and clearing them before a fixed date without having to pay any interest on it. It can help you manage your expenses in an organised manner.
You can seek rewards, cash backs, get access to airport lounges, avail discount on shopping and dining, among other things. However, have you ever wondered if a credit card can help you save money for long term wealth creation. In other words, can a credit card help you save for retirement?
On the face of it, credit card is not meant for wealth creation. What it does is to help streamline finances which – in long term – lead to creation of wealth.
Let us understand more on this. While credit cards do not help investors to save for retirement, they can support retirement savings goals indirectly in a number of ways. These are some of the points worth considering:
1. Cash back and rewards: Some credit cards give rewards or cash back on purchases. One can monetise these rewards and either use them or route them (if possible) to invest into a saving account.
2. Budgeting: Using a credit card can help you seamlessly with budgeting and with spending. By keeping a tab on expenses, one can identify areas to cut back and redirect those funds to your retirement savings.
3. Managing expenses: If used responsibly, credit cards can help manage cash flow. For instance, if you have a sudden expense, using a credit card can enable you to maintain your regular savings contributions.
4. Paying off high interest debt: If you have high-interest debt, using a low-interest credit card or balance transfer card to pay it off can free up more money for retirement savings.
5. Helping with credit score: Using credit card in a disciplined manner can help you improve your credit score, which is quite important for your long term financial health, such as to raise a personal loan at low rate of interest. A high credit score goes a long way in creating wealth in the long run.
Key points to consider
Minimum debt: Accumulating debt on a credit card can curb your ability to save significantly for retirement. Make sure to pay off your balance in full to avoid interest charges.
Savings accounts: Consider prioritising traditional savings methods such as retirement accounts over credit card use for financial security.
Only an enabler: It is vital to note that a credit card can only be an enabler and not a game changer when it comes to saving money for long term wealth creation.
To sum up, we can say that while credit cards can support your financial habits, they should be used wisely and not as a primary strategy for retirement savings.
