3 Credit Card Mistakes to Avoid During Hard Times
You can always blame the bad weather or bad economic situation for your falls. Oh, wait the last one you can. Even people with a stable income and a good job can face unpredictable circumstances.
What do they do next? Correct, they start using credit cards.
But what if we told you that a few months of improperly using a credit card might result in bankruptcy? Seems too harsh to be true, right?
In this article, we don’t want to protect you from tough times. They will come: today or tomorrow, and you can’t be 100% ready for it. You just need to know how to act and what to avoid; and how to get back to normal as soon as you can. So, what we’d like to clarify here is what credit card mistakes you should avoid making a positive impact on your financial status.
Whether it’s a good time, or a tough time, having a plan can save you money. If the circumstances allow and you need emergency cash immediately, consider alternatives before making the mentioned below mistakes.
1. Spending Money As Usual
Typical behavior for at least 50% of people: just move on with their lives and act as if nothing happened. On the other hand, lots of regular charges (like cell phone bills, internet, and gas) depend on the economic flaws; demanding you to adjust the budget accordingly.
Step back and take a hard look at what you need vs. what you want. Consider cutting out unnecessary purchases or unused subscriptions. Make rental costs and food expenses your priority; save something for emergency expenses, while the rest can wait.
2. Relying on a Credit Limit
If you cut your budget a little, you’ll see the opportunities to save more (even if it’s just $5 a week) and use your credit card less.
A credit limit can max out or get slashed at the issuer’s discretion. Before that happens, you should request a higher credit limit, when your financials are in good order. An issuer may run a “hard inquiry” after such a request which temporarily drops credit scores, but that’s not something to worry about.
3. Carrying a Balance on a High-Interest Credit Card
Why not? At least, because shopping on high-interest credit cards will make purchasing more expensive. According to Federal Reserve data, the average interest rate in 2021 was 16.45%, while some of the credit card suppliers ran higher than 29.99%.
Back to the tough economic situation, a card’s interest rate largely depends on what’s happening in the country. Therefore, high interest is not something to keep on a credit card.
If you need a solid strategy for a debt payoff, check if you qualify for a balance transfer card. It allows moving high-interest balances onto a new card with a lower rate. To apply for a transfer card, you need to have a FICO score of 690 or higher.
What Can You Start Doing?
In case you have been repaying credit card debt for a while, consider the following steps to make your life easier:
- Stop collecting penalties for late fees
Because not only it’s bad for your credit score, but it’s also bad for your quality of life. Do you want to live in constant debt? Do you want to keep racking up late fees?
If you’re not able to make payment on time, contact your credit card issuer immediately. Ask if you qualify for changing the due date or refer you to a non-profit credit counseling agency. The last one will provide you with a debt management plan to help to adjust a credit card line to your budget.
- Think about cash advance … then think again!
A cash advance is a type of short-term loan provided at a bank or ATM. It may seem convenient because of its speed, but the truth is – it’s very costly. The interest on the amount of cash borrowed starts accruing immediately and fees may apply.
Consider a personal loan or targeted offers instead; choose the issuers that turn available credit on a credit card into a less pricey installment loan, putting cash in your bank account.
- Consider a secured credit card
A secured credit card is a type of card backed by collateral (as a deposit from a cardholder). The people applying for this card usually have a low credit score or no credit history at all. You might have an opportunity to upgrade to an unsecured card with no deposit if you use the secured card responsibly.
More About Secured Credit Cards
As we mentioned already, a secured credit card is your way to a good credit score. It can either repair damage or take you deeper into debt. We won’t consider the second option (because we’re here to talk about the positive outcomes), so let’s take a closer look at the benefits of using a secured credit card:
- You have an access to the card in credit-only situations – the card issuer will let you use the card, when you can’t use cash (for example, when booking a room at a hotel or renting a car);
- You can spend more responsibly – a secured card keeps your spending in check, because it only allows spending the amount of your security deposit, no more;
- You may improve your credit score – just do regular payments, that’s all!
To summarize the mentioned points, the tough times come and go (hopefully), but your financial stability is what matters most. Tough times are not the times for a mistake; don’t let this happen, unless you want to spoil your credit history. Take a break to weigh your options and think about how you can manage the stressful situation. Even small business packaging ideas can help you with your financial situation and it can really boost your financial state. So even small ideas in your head can become a real life saving hand.
As an alternative to a regular credit card, you may consider a secured credit card. It comes with collateral and has a limited amount of money you can spend. It may “teach” you to spend wisely, and help you survive till the good times roll again.