Your credit card could save you money in the short term.
Dealing with a sudden and disruptive financial event, like a reduction in work hours, is hard enough. Doing so in the midst of a global pandemic, as new cases of COVID-19 emerge every day and major US cities are virtually shut down, can be overwhelming. But if that's where you are now, or fear you might be soon, using your credit cards strategically could help you move forward.
Truth be told, credit cards have their own costs, risks, and limitations. It is possible to run up high-interest debt, which can put you in a more precarious financial situation. If you're already feeling the pressure of credit card debt, adding more may not be an option. Seeing if you qualify for a bank card difficulty program could be a good decision.
Credit cards can keep someone afloat for a limited time. Debt must eventually be paid off, so they are not a solution to a permanent loss of income. But when you're faced with a short-term disruption to your earning power (short hours, loss of tips, or layoffs), they can be a convenient way to weather the storm and keep costs down. That's how.
1. Keep Cash
If you have limited cash, you may need it for essential expenses that you can't afford on credit, such as rent or mortgage payments or, in some cases, utilities. Using a credit card for other purchases allows you to let those costs fluctuate so you can make your cash reserves last longer. Carrying debt over from month to month usually means paying interest, so this flexibility comes at a cost. However, if you've paid your credit card bills in full thus far, you can buy some interest-free time using your grace period. When you pay off your entire statement balance, new purchases won't begin accruing interest until the next statement's due date. This means you can get 50 or more interest-free days between purchase and payment—about 30 days in a typical billing cycle, plus 21 to 25 days between the end of the cycle and the due date.
Grace periods have some limitations. They only apply to purchases, not balance transfers or cash advances, which will generally start accruing interest immediately. Also, if you don't pay all balances in full in the previous billing cycle, there is no grace period. Purchases will begin accruing interest the day they are processed, unless you have a 0% APR offer.
What to know
2. Time to buy
Sometimes at 0% In a crisis, income can fall off a cliff without warning while expenses continue to soar. Credit cards can spread that impact, "flattening the curve" of your spending and giving you time to adjust. This can especially mitigate the blow of one-time or infrequent expenses that you might otherwise have paid all at once, such as a repair bill. However, carrying balances on high-interest rate credit cards isn't ideal if you can help it. Over time, the interest charges can add up and make your debt more difficult to manage. If you have good credit, consider getting a credit card with an introductory offer of 0% APR on purchases; many of these have interest-free periods of a year or more.
What to know
Even with a 0% APR credit card, you'll still need to pay at least the minimum each month. In general, you'll also need good or excellent credit (credit scores of 690 or higher) to qualify for a card with an introductory offer of 0% APR on purchases. If you can't qualify for a 0% APR card, you'll have to pay regular interest rates, which could increase your debt. Yes, credit scores can definitely be confusing.
3. Reducing the cost of existing debt
When money is scarce, high-interest debt, such as old credit card balances, can spiral out of control. In some cases, interest charges can be so high that paying just the minimum hardly makes a dent in your balances. To curb interest charges, consider a balance transfer and debit shift to a card with 0% APR on balance transfers. With such a card, you will potentially have a year or more to pay off this interest-free debt. This gives you the flexibility to focus on other, more pressing short-term financial obligations.
What to know
You usually need good or excellent credit to qualify for the best balance transfer cards. And moving debt usually isn't free; Most credit cards charge balance transfer fees of 3% to 5%.
Issuers sometimes offer balance transfer offers to existing cardholders as well. For example, you may receive convenience checks from an issuer in the mail that count as balance transfers and have a lower APR (if not 0%, then at least lower than what you're paying). If you are unable to qualify for a new card, check your email, mail or online account portal for offers like these. And as always, make sure you understand the terms before applying.
0 Comments