What Credit Card Rules You Can Break In A Pandemic Or Economic Crisis?
Most of the financial advice that you see today when it comes to your credit card utilization is tailored for individuals who are not struggling with any financial emergencies. But if you will be able to encounter a sudden shake-up to your earnings, then that’s an entirely new story.
In fact, such a situation is quite familiar and prevailing today. With the rise of COVID-19 pandemic, many have lost their jobs and once-steady source of income. Right now, it is essential that all of us will be realistic. It is not ideal anymore that we keep our credit cards sacred for the sake of your credit scores. You can deal on the debts later. This time, you have to prioritize your survival.
Here are some of those credit card rules that you can ignore if the times are not good.
“Never Have A Monthly Balance”
One of the reasons why you can break this rule is pretty simple. We are not new to the fact that credit card debts are quite expensive. That’s why we want to be clear of them as much as possible. However, if the tradeoff is living without having the essential necessities (i.e., food and rent), then the cost of these debts is something that you need to bear.
This particular came from the high-interest rates that most credit cards give to their holders for each of the balances that you get monthly. Surely, you can pay the balance in full so that you’ll not get any interest. However, carrying balances will require paying interests with annual rates that go higher than 20%. In the long-run, such debt will become a burden.
However, an economic crisis is an exemption to this rule. You just need to pay less on your monthly credits so that you will be able to extend your monetary resources. You can just bounce later.
“Pay Bigger Than Your Minimum Due”
In regular situations, you can always pay higher than the minimum dues to make your credit standing good looking. However, in times of crisis, doing so is no longer practical. Keep in mind that paying more doesn’t really drastically reduce your debts. Hence, it is best that you settle what is only needed so that you can survive a little longer.
The minimum payment in your credit card statement is just a small percentage of the amount you actually owe. This should be able to cover some of the monthly interest and portions of the principal amount. When you pay the minimum, it will not ding your debt. If you prolong such a habit, you’ll have to pay longer.
However, you should no longer worry about such if you are stuck in an economic crisis. Priorities go scramble, and usually, it will shift toward the things that you need to remain afloat. Instead of paying the extra or above the minimum, why not save that money first so that you can settle your mortgage, bills, and groceries?
“Maintain A Credit Utilization Ratio Under 30 Percent”
Technically, it is not good if you are going to spend over 30% of your credit card utilization. After all, it is a major factor that determines your credit score. Lower utilization means that you will get better credit standing.
But similar to other rules listed here, you can break this policy during a crisis like a pandemic. While it is true that improper credit utilization is harmful, it does not cause lasting damage as compared to missed dues. Right now, it is justified that you will increase your utilization so that you will be able to secure your essential goods while you are short in cash.
Once things go back to normal, you should be able to reduce your utilization, as well. This time, your score can easily recover.
“Always Redeem The Rewards”
If you are really in a tight spot, then it is entirely pointless that you have lots of reward points. Converting them to cold cash will give you lesser value as compared to using them for other expenditures.
Things are better if you are financially secured. The smart approach here is to redeem the credit rewards to an item or offer that gives the most value to it. For instance, credit cards for travel will give more value if you use them to pay for anything travel-related than if you use them for other non-travel payments. But of course, if there’s a pandemic, it is quite obvious that travel is not a pleasure that you can take. In fact, even if you want to, you’ll never be able to fly due to government restrictions.
It doesn’t make sense that you accumulate points for future conveniences if you are currently struggling. Hence, even if it is against you, there should be a need for you to redeem these points so that you can pay for the essential goods. It will even help you create a manageable emergency fund.
You should also do the same thing in the way you earn your credit rewards. Every time you purchase, never force yourself to spend on things that will yield the highest reward. Spend on the valuables, regardless if they will not give you that many points. The point here is that you can survive the financial crunch.