Credit cards can cause a lot of financial burdens if not managed properly, but if used correctly, they can help to improve your financial well-being and steer you towards financial success even during an economic recession.
Credit cards also serve as an important resource when you urgently need money.
However, when you’re unable to make payments on time that might become a problem as your payments can add up rapidly. Here’s what you can do during the pandemic.
Understand the benefits and rewards of credit cards.
Contact your credit card customer support to learn if there are any changes to benefits and rewards due to COVID-19. Here are some best reward cards of 2020:
- American Express® Gold Card: Best for groceries and takeout
- Citi® Double Cash Card: Best for everyday spending
- Chase Freedom: Best for rotating rewards
- Chase Sapphire Preferred Card: Best for beginner travelers
- Capital One® Venture® Rewards Credit Card: Best for airline rewards
- Chase Sapphire Reserve: Best for frequent travelers
- Ink Business Preferred Credit Card: Best for small businesses
- Blue Cash Preferred® Card from American Express: Best for streaming services
- Wells Fargo Propel American Express® card: Best for gas rewards
- Capital One® Savor® Cash Rewards Credit Card: Best for entertainment rewards
- Chase Freedom Unlimited: Best for flexible rewards
Avoid borrowing.
Ideally, it’s advisable to stop using credit cards at all to avoid adding extra debt, especially during such economically uncertain times. Of course, it's a crisis, so it’s understandable if you need to lean on some of your credit. If possible, however, avoid borrowing money via your credit card. The more debt you get into the harder it is to get out of and get yourself back on track. One of the main reasons behind our neverending borrowing habit is that many of us live beyond our means. Outgoings simply outpace our incomings. The best advice here will be to live below your means: start making more money, find a side job, sell extra stuff, and rent out a room, or another property if you have a spare one.
Don’t cancel cards.
Even though it’s best that you stop using them, you also want to make sure to keep your credit card accounts open. Part of what makes up your credit score is your credit history, which includes how long you’ve had open lines of credit. The longer you can show positive open credit lines, the better it is for building your credit score, not to mention keeping them open to benefit from any rewards that you may have earned to pay for essentials.
Focus on essentials.
Prioritize your basic needs: groceries, monthly bills, mortgage payments. Remember the 50/30/20 rule, where:
- 50% you spend on essentials: needs like housing, bills, food, gas, etc.
- 30% you spend on entertainment, going out, travel, and whatever else you wish. Just stick to that 30%.
- 20% is where you work for your future and save + invest if possible. Once you save enough, you’ll have some cash for investing: stock, real estate, index funds - depending on where you are experienced the most. Make sure you allocate your budget accordingly; track all your income and stay organized.
Contact a debt relief company.
If you’re facing struggles with making all of your payments, don’t hesitate to reach out to Financial Rescue. For over 11 years we’ve been helping people struggling with paying out debt. Contact us for information on our debt relief services today.