As Americans continue to deal with a challenging job market, a shaky economy and even shakier political climate, more and more consumers are turning to credit cards to simply live. Americans owe $1.23 trillion in credit card debt alone, with the average consumer owing a balance of $6,768, according to Experian.
During times of crisis, it’s best to adjust your credit card strategy. Here’s what you should be doing now to make sure you stay above water during hurricane season.
[Read: ]
How to Use Your Credit Cards During a Crisis
Traditional rules go out the window during times of uncertainty. Instead of being perfect, you should focus on management:
— Prioritize essential spending. No one likes pulling back on spending (or is that just me?), but it’s necessary during times of economic strife. If you want to keep earning rewards, only put essential purchases — like groceries, rent and utilities — on your credit cards, but only if you know you can and will pay off the full amount right away. Otherwise, you could quickly find yourself drowning in debt.
— Use balance transfer credit cards. If you find yourself struggling to make payments on your credit cards and are only able to pay the minimum amount every month, consider a balance transfer credit card. Many offer lengthy 0% introductory periods, some close to two years. This works best with lower balances, however.
— Consider debt consolidation. If you have tens of thousands of dollars in debt, a may be a better option than a balance transfer card. And payments may be more affordable if your loan repayment period is longer than a balance transfer card’s introductory period.
— Contact creditors about hardship programs. Not enough consumers do this before things get out of hand. If you know you can’t make payments anymore, contact your issuer immediately and discuss what your options are. Some issuers offer that can get you lower payments or waived fees.
— Avoid maxing out your credit cards. This might seem like a no-brainer, but it’s worth repeating. Remember, your credit utilization is worth 30% of your , and a high credit utilization rate will significantly lower your credit score. It’s OK to have high credit utilization for a short period, just don’t let it stay there.
— Negotiate lower interest rates. You’re more likely to get from your issuer if you have an excellent credit score and a positive payment history. If your issuer won’t lower your rate indefinitely, try asking for a temporary reduction.
— Avoid cash advances. A cash advance is similar to a short-term loan, in that you borrow money against your available credit limit. And while helpful in a pinch, cash advances do come with higher interest charges and fees. There’s also no grace period, so you will be charged interest on the advance immediately.
[Read: ]
One Last Resort
If the credit card debt is just too much to bear, you could consider credit card debt forgiveness, or debt settlement. With this kind of debt relief, your issuer agrees to accept less than what you owe — but it’s not painless.
Your credit score will drop — often over 100 points — and creditors can still pursue you for payment. You may also owe taxes on forgiven credit card balances, and your credit score will take at least five to seven years to bounce back.
How to Protect Your Finances
In addition to maintaining good money habits with your credit cards, don’t forget other aspects of your finances that need just as much protection.
— Set a strict budget (and stick to it). Reevaluate your finances, noting where every dollar goes. After all your bills have been accounted for, give yourself an “allowance” of whatever’s left.
— Pay more than the minimum amount due. This might seem impossible right now, so only do this if you’re able. Preferably after you’ve negotiated new terms with your card issuer.
— Monitor your credit score. You should always keep an eye on your credit score and report, even if you’re not preparing for a large purchase. Errors happen all the time, and you don’t want to get dinged for something that wasn’t your fault. You can for free with a number of tools, including one from U.S. News.
Remember, crises pass! When you’re on firmer footing, you can readjust your money habits again. But for now, focus on making it through to the other side unscathed.
More from U.S. News
originally appeared on
