Using Credit Cards Responsibly During a Crisis
Abrupt events that can impact our financial well-being are always a possibility. Whether it’s a natural disaster or a global pandemic along the lines of the COVID-19 (coronavirus) crisis of 2020, an individual’s or family’s financial security can be wrecked through no fault of their own.
Good financial planning that foresees future disruptions includes the need for creating and maintaining an emergency fund. Even if you have taken steps to safeguard yourself against a crisis, a damaging financial event that includes the loss of a job can drain even the best preparation.
Several sources including MarketWatch examine the possibility of using credit cards - strategically and only for a short term - in order to get through a financial crisis. There are important considerations that come along with this, including the pitfall of racking up high-interest debt that can put you in a more precarious financial situation. For anyone who already faces any sort of debt, adding more through even the slightest use of credit cards might not be an option. For assistance in those cases, RBFCU is a partner with GreenPath, which is a national nonprofit focused on financial wellness. GreenPath offers a people-centered approach, ambitious goals, and creative strategies that sets the program apart. GreenPath is far more than a credit counseling agency.
Important advice on carrying credit card debt responsibly during a crisis that comes from creditcards.com includes trying to find ways to make extra money. This is very important as you pay your debt down and make your bank account grow.
When you’re faced with a short-term disruption to your earning power, a credit card can be an accessible way to ride out the storm while keeping costs low. Here’s how according to MarketWatch:
The cash you do have during a crisis can pay mortgage, rent, auto loans and utilities. Using a credit card for purchases, planned for in a budget that you will stick to, can make your cash reserves last longer.
If you’ve been paying your credit card bills in full up to now, you can buy some time interest-free by making use of your grace period. When you pay off your entire statement balance, new purchases won’t start gathering interest until your next statement’s due date. That means you can get 50 or more interest-free days between making a purchase and paying it off: the 30 or so days in a typical billing cycle, plus the 21 to 25 days between the end of the cycle and the due date. Check with your credit card issuer. Know what your grace period is. Know that if your balance is not paid in full each month, you accrue interest on the first day of the next billing period.
Buying time at lower interest
It’s not ideal to carry balances on credit cards with high interest rates. If you carry a rewards, or loyalty, card that gives back cash or travel points, consider forgoing those perks for now and switching to a card with a lower interest rate. A credit union like RBFCU can offer you a card that fits your current lifestyle, including a lower interest rate.
Reducing the cost of existing debt
Moving a balance you owe from a high-interest rate credit card to a credit card that offers a lower APR is often a good financial move that can lead to beneficial results. A credit union can offer 0% APR on Balance Transfers, allowing you to pay down debt without interest charges for a set period of time. Make sure you have good credit, and find an offer where you don’t have a Balance Transfer fee or annual fee.
Membership eligibility required. Credit cards are subject to credit approval. Program availability, rates and terms are subject to change. Any unredeemed rewards on any RBFCU cash back reward credit cards, as of the end of the annual earnings cycle (Oct. 1-Sept. 30), are paid out to the member’s select deposit account. Rewards access subject to account status and other criteria at time of redemption. The 0% Annual Percentage Rate (APR) is a promotional rate for only Balance Transfers and Cash Advances made during the first 90 days your account is open. Purchases are not included. We will not charge you any interest on purchases if you pay your ENTIRE balance, including Balance Transfers and Cash Advances, by the due date each month. If the ENTIRE balance is not paid, then interest will be charged on any purchases, but not on the Balance Transfers and/or Cash Advances made during the first 90 days of the account opening. Promotional rate balances will remain at 0% APR for twelve months starting from the date of the initial Balance Transfer or Cash Advance request. Beginning with the thirteenth month, any remaining balance will be repriced to an APR of % to % for a Premier Rate credit card or % to % for a CashBack Rewards card based on your creditworthiness and other factors. There is no fee for Balance Transfers. A Cash Advance fee of up to 2% of the amount of each Cash Advance is charged. Contact the Consumer Lending Center for complete details.
This article is intended to provide general information and should not be considered financial advice. Please consult a financial professional before taking any action and to determine how the information provided in this article may apply to your situation.