Often, credit card experts give advice about using credit cards that comes across as set in stone. The advice is often sound and meant to protect cardholders from potentially disastrous financial situations. It can include so-called rules: never carry a balance; pay more than your minimum required payment; and protect your credit score at all costs.
But what if there’s a financial emergency, such as the COVID-19 pandemic, currently affecting millions of people around the world? In the current situation, you may need to break a few credit card rules. These are unprecedented times, with unemployment and fear of a recession both increasing and many people feeling like they’re drowning in debt.
So let’s set the rulebook aside for now. If it makes sense for your financial situation, you can feel free to break these old credit card rules and follow our new suggestions instead.
Never carry a balance
“It’s never smart to carry a balance.” That would be the usual credit card advice to give to a cardholder, but circumstances have changed. Your financial circumstance may be such that you simply need to carry a balance right now.
0% APR credit cards
It’s possible to carry a balance without adding even more to your debt in interest charges. There are 0% APR credit cards available that can help you manage your debt as you work your way through what will hopefully be a short-term money crunch. With these 0% APR credit cards, you don’t have to pay any interest fees for a set amount of time determined by the card issuer. This amount of time is often called an intro period or promo period, and it can be very beneficial if used correctly.
There are two types of 0% APR offers:
- 0% APR on balance transfers: With a balance transfer offer, you can avoid accruing interest on any balance you transfer from another credit card to your new credit card.
- 0% APR on purchases: With this offer, you can avoid accruing interest on any new purchases you make with your new credit card.
Neither of these options is meant to erase your debt. Rather, you can use these tools to carry interest-free balances, which gives you a bit of financial freedom to get through an emergency. If you don’t have to worry about paying off interest, you can free up some cash for essential bills or unexpected events. Just be aware that you may risk losing your 0% APR offer if you make any late payments on your credit card.
Interest-bearing credit cards
What if you can’t get a 0% APR credit card, you can’t pay off your debt, and you have bills that are coming due? If you’ve exhausted your financial options, your solution may be to use a credit card and carry a balance. During good times, this would be less than ideal because carrying a balance means you’ll accrue credit card interest. And credit card interest rates are generally high on average compared to other forms of debt — usually around 17%.
However, it could be more important for you to pay your critical bills than worry about accrued interest right now. The U.S. Department of Labor is reporting record amounts of unemployment claims on a weekly basis, even reaching as high as 6.6 million claims in one week. Before these weeks of multimillion claims started, the previous record high claims in a week was 695,000 in October of 1982.
If you just got laid off, a credit card can be a valuable resource. Yes, it may cost you some extra money in the long run if you pay your bills with a credit card and carry a balance. But it’s worth accruing interest to keep you and your family safe and secure during these troubled times.
Always pay more than the minimum due
The common advice for cardholders is to pay more than the minimum amount due on your credit card balance each month. If you pay only the minimum, you’ll accrue interest and it will take longer to pay off your debt.
Now may not be the time to pay more than your minimum payment. If it’s possible to pay more than your minimum payment each month, you should do it, as it will save you from paying more in interest over time. But if you don’t have the money to do that, then you should focus on paying for things that are necessary, including utility bills and groceries.
It’s more important to stay safe and healthy right now than to worry about interest charges. And if you’re having trouble even making your minimum credit card payments, consider looking into the coronavirus relief being offered by credit card companies. Many credit card issuers are helping customers affected by the coronavirus pandemic by lowering monthly payments and waiving some fees.
Don’t get a credit card if you don’t have a job
Most of the time, it wouldn’t be advisable to get a credit card if you don’t have a steady source of income. With credit cards, you’re borrowing money from a lender that can charge you interest for any overdue debt. If you don’t have the income to pay off that credit card, your debt will only increase as the interest accrues.
Still, if you’re struggling financially right now, it could be a good idea to look into getting a credit card. You might need it for bills and other expenses. If you’re wondering how to get a credit card without a job, it may be simpler than you think.
Applying for a credit card normally requires you to list your total annual income. What you can include as total income may vary by credit card issuer, but these revenue streams will normally count:
- Spouse’s income
- Any money that is regularly deposited into your account for you to use
- Self-employment income
- Income from full-time, part-time, or seasonal employment
- Interests or dividends
- Retirement income
- Public assistance
Even without a steady income, you can meet the income threshold required by many credit card applications. It wouldn’t normally be a good idea to apply for a credit card when you don’t have a job, but paying bills with a credit card could help you if you’re in a tight spot.
Don’t get a new credit card if you can't meet the minimum spend
Many credit cards have minimum spend requirements attached to them for new cardmembers. This means if you spend a certain amount of money within a specific period of time — often 90 days from card opening — you can receive a new cardmember bonus in the form of cash back, points, or miles.
These are valuable offers that attract many people to apply for certain cards. For example, with the Chase Freedom Unlimited, you can earn a $200 cash back bonus after spending $500 in the first 3 months, plus earn 5% cash back on grocery store purchases (not including target or walmart; up to $12,000 in the first year). That’s a generous return for the amount you need to spend. You’re probably spending $500 on something over the course of three months anyway.
In normal times, it wouldn’t make financial sense to go after a welcome offer if you didn’t have the money to spare for it. You’d be wasting an opportunity you could just set aside for later. In troubled times, it could still be worth it to sign up for that credit card, though.
For example, if you apply and are approved for a balance transfer credit card, you could transfer an existing debt onto your new card and avoid paying any interest charges for a while. This could allow you to focus on paying important bills instead, regardless of whether you earn the sign-up bonus or not.
It may also be beneficial for you to avoid meeting the minimum spend on a credit card if you want to keep your credit utilization low. Credit utilization is how much of your available credit line you’re using. It’s one of the big factors that make up your credit score, accounting for 30% of a FICO score.
Higher credit utilization can negatively affect your credit score. If you don’t try to hit the minimum spend, which can sometimes be up into the thousands of dollars, you’ll use less of your available credit line, and therefore have a lower credit utilization. This could result in a better credit score, which could be useful in certain situations.
Specifically, you could keep paying your bills with one credit card and apply for another credit card that has a lower interest rate. Because your credit score hasn’t been negatively affected through high credit utilization, you would have a better chance of being approved for the new credit card.
Don’t cash out your travel rewards
Travel rewards cards can allow cardholders to earn valuable points and miles when they make purchases. Most often, the best value for these rewards comes when they’re redeemed for travel-related options, such as flights, hotel stays, and car rentals. Redeeming points or miles for cash back is usually an option, but not the best monetary value per point.
For instance, let’s say a Chase Sapphire Preferred cardholder has accrued 50,000 Ultimate Rewards points by using their card. If they book a flight or hotel stay through the Chase travel portal, this amount of points would be worth $625. Or they could redeem their points for cash back and receive $500. In this case, a travel redemption would offer more monetary value than redeeming points for cash back. But if you’re going through a financial crisis, straight cash in hand could be more valuable to you than booking a flight for a future vacation, especially given the uncertainty of the travel industry.
It could be a good idea to cash out instead of hoarding your travel rewards in case they become devalued or you just don’t want to wait for travel to normalize. Although it may not appear to be the best value in rewards redemptions, cash will always hold a high value, especially because you can use it in the meantime.
Always be mindful of your credit score
Making sure your credit score is healthy and always rising is the basis of any sound advice concerning your credit. You should keep your credit utilization low, not apply for too many credit cards, and avoid late payments. Those are all great steps to take when life is normal, but if you need to cover essential expenses right now, you may need to go against that advice.
Unfortunately, that means your credit score may take a hit during a period of financial instability. If you’ve lost your job and can’t pay bills, you may need to take actions that could negatively impact your credit score. You may need to apply for more credit cards or start racking up a balance on an existing line of credit.
A debt management plan could help you land on your feet financially down the road, but for now, you should focus on your present needs, such as paying your utility bills and making sure there’s food on the table. When compared to these immediate concerns, worrying about your credit score doesn’t seem as pressing, and it can wait.
When it comes to a crisis that disrupts your entire financial situation, certain credit card rules may need to be pushed to the side while you focus on what’s important — which is taking care of yourself and your loved ones. Holding onto rewards is no substitute for the value of cash in hand, and you can always work on repairing your credit score later.
If you’re unemployed, you can use credit cards to stay afloat. There are even ways to get a credit card when you don’t have a job. Please note that we’re not saying you should rack up unnecessary debt. We’re just recognizing that there are ways to intelligently use debt to help you get through difficult times.
Most of all, do your best to stay positive and think outside the box to come up with financial solutions. It’s OK to break some so-called rules right now if you need to.
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