7 Smart Ways to Use Your Credit Cards in a Recession

Credit cards sometimes get a bad reputation. But in reality, they could help your finances if you use them strategically. Whether you’ve lost your job, had your hours cut, or are still earning as much as you did pre-COVID-19, wise credit card use could help steer you toward financial success, even during an economic downturn.

The conventional wisdom on how to use your cards (pay off your balance each month, use autopay) might not always apply during turbulent times. Let’s take a closer look at seven smart ways to use credit cards in a recession.

1. Understand changes to rewards and benefits

Go online or call your credit card holder’s customer service to understand whether there have been any changes to your rewards or benefits. Right now, to alleviate some of the financial stress that the COVID-19 crisis has caused, many card issuers are increasing rewards for necessary purchases, like groceries. Here’s a glimpse at a few changes in credit card benefits and rewards.

• American Express: If you use the AmEx Platinum Card for streaming and wireless phone services like Netflix, Hulu, and HBO Now, you can collect up to $320 cash back in statement credits until December 2020.

• Citibank: In the past, the Citi Prestige Card came with an annual $250 travel credit that could only be used for airfare, hotels, and other travel-related purchases. From now until the end of the year, the $250 credit can be applied toward purchases at restaurants and grocery stores.

• Chase: With the Chase Sapphire Preferred, you can earn 25% more in Ultimate Rewards points on any eligible grocery, dining, and home improvement purchases you’ve made. This benefit is available until September 30, 2020.

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2. Don’t pay off cards if you’re low on cash

Under normal circumstances, you’d usually want to pay off your credit card balances every month to avoid interest charges and keep debt under control. During these uncertain times, however, you could consider carrying a bit of debt until you’ve built an emergency fund and preserved your cash flow. You may need the extra cash to cover expenses like your rent, mortgage or any other emergency expense that you can’t or shouldn’t put on credit.

3. Adjust or turn off autopay

In general, autopay is a great tool to help you avoid late fees and we often recommend it. But currently, if the level of your checking account isn’t as high as it used to be or varies more than it used to, you may want to adjust autopay to avoid overdraft fees. You may tweak autopay to cover the minimum payments only, and pay more manually as your budget allows. Another option is to go ahead, turn off autopay and pay manually until you feel more stable financially.

4. Avoid canceling your cards

If you no longer want to use a certain credit card or want to avoid paying its annual fee, you may be tempted to cancel. Believe it or not, canceling your credit cards can negatively affect your credit score, so it’s likely a better idea to simply put the card aside and not use it rather than cancel it altogether. If you’re concerned about the annual fee, call your issuer and ask them to waive it.

5. Focus on cash back cards

Since you’re likely focused on maximizing your cash flow, consider opening a cash back card or shifting to the cash back cards you have. While some cash back cards will give you a percentage of cash on certain category purchases like gas and groceries, others offer a flat percentage on all purchases. You can redeem your rewards via statement credit, check, or direct deposit into your bank account, which could help supplement that cash flow.

6. Look into an installment loan program

Some credit cards come with an installment loan feature that you can use to pay for certain purchases in fixed monthly payments in exchange for a monthly fee or fixed interest rate. An example is the Pay It Plan It from American Express. With an installment loan program, you can transfer your debt into a personal loan with a more predictable payback schedule and sometimes, a lower interest rate.

7. Control credit card spending

While credit card rewards are great, they will not solve an overspending problem. Be mindful of your spending habits and do your best to only buy what you need and can afford. Even if you’re lucky enough to still be employed, these are uncertain times and excessive credit card debt can hurt your financial goals far into the future.

Consider debt relief

If you’re struggling with credit card debt and hope to move toward a stronger financial position in the future, it might be time to take a bigger step. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future.

Learn More

• Is a Balance Transfer Card Harder to Get Right Now? (Freedom Debt Relief)

• Talk to a Creditor About Loan Forbearance: A Step by Step Guide (Freedom Debt Relief)

• Financial Advice to Ignore During a Recession (Freedom Debt Relief)

• 3 Smart Ways to Use Credit Cards in a Crisis (MarketWatch)