Credit cards can provide a lifeline during financial difficulties.
The coronavirus pandemic has wreaked havoc on the U.S. economy, with unemployment surging to its highest point since the Great Depression. Roughly 55 percent of adult Americans have credit card debt, and an economic downturn can make it even more challenging keeping up with payments.
While the stimulus package hasn’t benefited credit card holders like it has student loan borrowers, many card issuers have offered relief to cardholders who can’t make their payments in the form of forbearance programs.
Despite the potential risks that come with having credit card debt during economic hardship, having the right credit cards for a financial emergency can help your situation.
How to use credit cards for a financial emergency
If your credit is in good shape, getting the right credit card can help you weather the storm of the coronavirus pandemic and its impact on the economy. Credible can help you compare all credit cards to find the option — from earning travel points to cashing in on rewards — that best fits your financial needs.
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If you're looking for something specific to preparing for a financial crisis, these three options are worth considering.
Delay interest with a 0% APR promotion: Some credit cards offer an introductory zero percent APR on new purchases for anywhere between six and 20 months. This feature allows you to cover your living expenses without worrying about the immediate threat of interest charges. Just make sure to pay your minimum monthly payment every month, and you can make a plan to pay back the debt when you’re back on your feet.
Reduce interest with a balance transfer: Balance transfer cards offer an introductory zero percent APR on balances transferred from another credit card. So, if you currently have a large balance, you can move some or all of it to a new card and work on paying it down interest-free. Most of the best balance transfer cards give you between 15 and 21 of no interest, but many of them charge a balance transfer fee, which typically ranges from 3 percent to 5 percent of the transfer amount.
Save more cash: One of the benefits of using a credit card is that you’re using the card issuer’s money instead of your own. Of course, you have to pay for that privilege, but some credit cards—mostly from local credit unions—charge interest rates in the single digits. If your income has been lost or significantly reduced, using a low-interest credit card can help you avoid dipping into your savings accounts until you absolutely have to.
Find the right credit card for you
There’s no credit card out there that’s best for everyone, so it’s important to think about your financial situation and your goals before you choose one.
Keep in mind that most low-interest, zero percent APR and balance transfer cards require at least good credit, which means a FICO credit score of 670 or higher. If you have an idea of what credit score range you fall into, you can insert which type of credit card you're interested in into Credible's free online tool and compare rewards, rates and fees instantly.
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Once you understand what you want in a credit card, take some time to compare several options, along with their features, to make sure you get the right one. For example, if you need a zero percent APR card, look at how long their promotional periods last, whether the cards offer rewards and what other useful benefits you can get.
Credible can help you with this process by giving you some of the top options available all in one place.
Protect your credit score during the coronavirus pandemic
As you consider whether using credit cards in a financial emergency is right for you, it’s important to ensure you’re mindful of how they can impact your credit score.
For example, missing a payment for 30 days or more can drop your credit score significantly because your payment history is the most important factor in your credit score. Also, racking up a large balance can also reduce your score—some credit experts recommend keeping your balance below 30 percent of your card’s credit limit, but the lower, the better.
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As a result, it’s essential to make at least the minimum payment every month to avoid credit score issues, though paying in full is ideal if you can do it. Also, try to avoid relying too much on credit cards to maintain a relatively low balance.
As you take these steps to use credit cards responsibly, you’ll be able to take advantage of the benefits they can provide without exposing yourself too much to their potential pitfalls.