How to Be Smart With Your Credit Cards When Times Are Tough

Christel Deskins

Editorial Independence We want to help you make more informed decisions. Some links on our site — clearly marked — will take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money. Life can be unpredictable, as this year’s […]

We want to help you make more informed decisions. Some links on our site — clearly marked — will take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

Life can be unpredictable, as this year’s pandemic has shown. A historic number of Americans are unemployed and feeling anxious about their financial future. 

Credit cards are an important financial tool for many Americans. But, if you cannot make on-time payments, credit card use can cause long-term problems, and drive you deeper into debt. 

If you’re worried about how you’re going to pay your bills, you’re not alone. Most of the major credit card companies are offering financial assistance to help cardholders who are facing financial challenges. Here’s what you should know to be smart about using credit cards when times are tough.

Having a Hard Time: What Are My Options? 

Most major credit card companies are offering accommodations for COVID-affected consumers. But the issuers won’t provide these options to you automatically, so you’ll have to call and request these relief options. 

Credit card relief programs vary based on the issuer, but here are some of the most common types of relief: 

Waiving Late Fees

Normally, credit card companies charge a late fee for each late payment. However, since the pandemic, many companies will waive late fees. 

Temporarily Lower Monthly Payment 

Most card companies will grant forbearance or deferment options. These options allow you to temporarily, pause, skip, or lower your payments. When your forbearance or deferment period ends, though, you’ll need to resume regular payments.

Pro Tip

If you’re struggling to cover even the minimum payments on your credit cards, contact your card provider to learn what temporary relief options are available.

Interest Rate Reduction

Your credit card interest rate is the cost of borrowing money from your card issuer. If you qualify, your issuer may reduce your interest rate. These are typically hardship based and are only temporary. Yet, a lower interest rate can help you pay down your credit card balance significantly faster. The less you pay in interest, the more of your payment goes toward your balance.  

Payment Plans

If you fall behind or cannot meet your monthly payments, you can ask for a customized repayment plan. This looks different for each issuer, but some examples would be adding payments to future due dates or extending due dates.

Other Ways to Manage Your Credit Card Usage 

Credit Card As Last Resort

It’s always important to use credit cards cautiously, and especially in times of financial challenge. If you’re not careful, “your bank balance can go from hero to zero in a matter of weeks,” says Ethan Taub, CEO and founder of Goalry, a financial resource comparison site. It may be tempting to turn to your credit cards to fund any shortfalls when times are tough. But even with the current deferred payment programs, doing so could cause financial trouble down the road. Consider tightening up your budget instead of turning to credit to finance your living expenses. 

Over Communicate 

In times of financial challenge, communicating with your creditors is essential to protect your credit score. “Many providers are offering forbearance options,” says Leslie H. Tayne, author, financial attorney, and founding director of Tayne Law Group, a New York-based debt solutions law firm. But you need to contact each creditor directly to see what assistance it can offer you. 

To take advantage of credit card relief, call your credit card provider and explain your current hardship, Tayne says. Be transparent about your situation and ask if it can provide any relief assistance. You might be surprised at what accommodations an issuer offers. And if not, you can try to negotiate better terms. 

Don’t feel rushed once you hear an offer or a suggestion. Ask if you can think about it or discuss it with your family and call back. Weigh the offer’s advantages and disadvantages before you accept, Tayne says. But at the end of the day, any accommodation an issuer offers is likely better than the alternative of doing nothing.

Continue Making On-Time Payments

The most important thing you can do right now is continue to make your credit card payments, even if it’s just the minimum amount due. Payment history is the most important factor in your credit score, accounting for 35% of your score. To stop paying your credit card can have lasting negative impacts on your credit score.

Maximize Existing Rewards

When possible, use a credit card that rewards you by matching your spending type. If you need to use a credit card on groceries and gas, and you have a card that offers cash back rewards for those purchases, make sure to use that card for these types of purchases. If your credit card spending is unpredictable and only needed in times of emergency, like paying bills, and you have a card with a flat cash back percentage for all spending, make sure to use this card to maximize your existing card benefits. These rewards can come in handy later. Some cards even let you use your cash rewards to put toward your balance – making your card-spending smarter. 

Rather than applying for new credit cards during times of financial challenge, make sure you’re getting the most out of cards you already have. But while rewards and card benefits can make unnecessary credit card use tempting, it’s important to always try to pay off your monthly balance, or at least the minimum monthly payment. 

Balance Transfer Credit Cards 

One way to manage your credit cards during tough financial times is to acquire a 0% interest balance transfer card. Many card issuers have eliminated balance transfer deals or raised credit approval requirements this year, but if you’re able, balance transfer cards are an efficient way to help you manage your credit card debt. They allow you to move a balance from one card account, with high-interest, to the balance transfer card account, for a promotional no-interest period. 

The no-interest period varies per card, and your amount owed is not reduced. But, this method can help you make payments without the burden of high-interest, chipping away at your principal balance more efficiently. Be cautious not to apply to more than one balance transfer card at once. Doing so can lower your credit score. Another thing to be mindful of is transferring a balance and then adding to it on the new card. To best use a balance transfer card, make sure you have a plan to pay the balance before the promotional interest period ends. 

Budgeting Makeover 

The best thing to do during hard times is to reassess your current spending and adapt it to be leaner and more frugal for the time being. NextAdvisor offers educational budgeting strategies to consider, like zero-based budgeting. These money management techniques can help you  avoid using your credit card unnecessarily. 

The Bottom Line 

It’s hard to stay positive and objective during a time of financial difficulty. But above all, keep your eye on the future and consider how today’s financial decisions can affect your finances next month, next year, and longer. 

If you must use your credit cards to get by, don’t miss your card payments — focus on making the minimum required payments for the time being to protect your credit score. If you’re struggling to cover even the minimum payments, contact your card providers to receive some temporary relief from your credit card bills. Focus on covering your basic necessities and save what you can until the hard times are over. 

Cynthia Paez Bowman contributed. 

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