Steer clear of these blunders. They could make a difficult time even harder on you.
Millions of Americans have suffered income loss and are struggling financially during the coronavirus pandemic. If you’re one of them, your credit cards might seem like a lifeline right about now. This especially holds true if you have access to a generous line of credit. But be careful with how you use and manage those cards — namely, by avoiding these major blunders.
1. Ignoring your minimum monthly payments
If you’ve lost your job in the course of the coronavirus pandemic, you may not have the money to keep up with your credit card’s minimum monthly payments. But don’t simply skip those payments; instead, reach out to your credit card issuer.
A lot of credit card companies are offering relief during the ongoing crisis, so if you ask for help, you may get the option to defer minimum payments for a while. You might also be able to pay a smaller amount toward your minimums without being reported as delinquent.
If you simply skip the payment, it may be recorded against you, which could seriously damage your credit score, making it more difficult for you to borrow money the next time you need to. But if you get permission to be late, you won’t have to worry about the impact on your credit score.
2. Charging expenses on a credit card instead of seeking out other loan options
If you’re lacking income in a very big way, you may feel that your only choice is to charge your most pressing expenses on a credit card and pay them off later on. But before you do that, it pays to look at more affordable borrowing options.
A personal loan, for example, could give you access to money at a much lower interest rate than a credit card. So before you reach for your card, have a look at what loans you might qualify for. Also, the more credit card debt you accrue, the more it will damage your credit score because it raises your credit utilization ratio (the amount you owe compared with the amount you’re allowed to borrow). On the other hand, if you take out a personal loan and pay it off on schedule, your score won’t take a hit.
3. Not using your reward points strategically
Many credit cards offer reward points when you make purchases. You can redeem those points to get cash back, buy gift cards, or, in some cases, get a statement credit.
If money is tight, don’t just blow your reward points on gift cards to your favorite restaurant or retailer. Rather, use them to minimize the amount you owe on your credit cards. Either apply them as a statement credit or redeem them for a check and use that money to cover your minimum payments. Granted, you might get a higher redemption value out of your points when you use them for gift cards — meaning, the same amount of points might give you a $25 gift card versus just a $20 statement credit. But if you’re desperate for money, it’s worth getting that statement credit.
Be smart with your credit cards
It’s easy to fall back on credit cards at a time when the economy is in shambles and your personal financial picture is bleak. But the smarter you are about limiting your credit card debt and managing your existing cards, the more likely you’ll be to emerge from the ongoing crisis financially unscathed.