If you are not convinced that you need to be a better credit user, then the current crisis should convince you. During the Great Recession, a lot of people had a hard time surviving because of their debts. The huge amount of balance they had made it very difficult for them to survive.
While it was the job loss that really pushed them towards the edge, it was their debts that made them lose whatever they have accumulated. These include their homes, cars, and other assets that they owned.
In light of recent events, it seems like some people are on the verge of going through the same thing. The pandemic has given us one crisis after the other. We have to deal with the health crisis and eventually, the recession that followed.
While the pandemic did not cause the recession, it sure tipped us to fall towards it. The recession was already bound to happen. But the market had been holding strong to keep it from happening. At least, until the pandemic happened. Now, the economy is going through a recession. Businesses are going down. People started losing their jobs. And a lot of consumers are left with no financial resources to pay off their debts.
If you don’t pay and manage your credit properly in the midst of a crisis, it will only make your financial situation worse.
So what can you do? You need to learn how to become a better credit user.
4 habits that will make you a better credit user
Admittedly, a lot of people are scaling back their use of credit cards. According to reports, the outstanding revolving credit has collapsed by an annual rate of 31% in March. It’s believed to be the biggest decline for a month since January of 1989.
But this drop is not just because of a change in spending. Banks have also started to restrict their credit lines. That means fewer people can access credit.
While it makes sense to pull back on using credit during a crisis, we cannot deny that using debt can be helpful at times. It can pull you out of tough situations – especially if you don’t have enough money to pay for things in cash.
You can use your credit cards for now. It’ll help you survive. You don’t have to worry about where you will get the money to pay for food. Without stress, you are free to think clearly about your next steps. Like how will you start earning more money?
Although the use of credit during a crisis is justified, it doesn’t mean you should be reckless with it. If you really have to use it, you need to be a better credit user. Especially while you are in the midst of a crisis.
The challenge is, how can you improve your credit habits? Here are 4 ways you can do that.
Plan your credit use
Make sure your budget plan is always involved when you use credit. In fact, in any financial transaction, your budget plan should always be consulted. If it’s not a part of your budget, then don’t spend on it. This is especially true for credit. If you plan on using credit, make sure that you take a look at your budget plan. This will help you determine how much you will spend using credit. For instance, if you have to use your credit card on food and groceries, your budget plan will tell you how much that would be in a month. Try tot stick to that amount and don’t borrow more than you need to.
Use credit with a purpose
If you have to use credit, make sure it’s done with a purpose. That’s how you become a better credit user. And part of this is understanding your current spending behavior. We don’t always spend money the same way. There are external factors that can affect how we use our money.
Like when we were all on lockdown, our expenses changed. According to reports, since the pandemic started, people spent more on supermarkets and e-commerce products and services. And with people forced to stay inside their homes, nobody was going out to eat at restaurants. There were also no people going to entertainment establishments. All of these experienced a sharp decline in spending.
Now, what can you learn from that? The lesson here is that you need to be conscious of your current spending behavior. Be aware of what goes on around you because that will define the purpose of your credit purchases. If your budget shows that you spend a certain amount each month on dining out, you can scrap that and put all the budget on food and groceries. This will help you maintain full control over your spending – making it less likely that you will overspend.
Monitor your credit spending
Since you are fully aware of your current spending behavior, this should be easier to do. Part of becoming a better credit user is being completely aware of your credit spending. After all, you need to pay this back. Monitoring your credit means you can see if your debt levels are getting too high. The higher it is, the harder it can be to pay it off. It will also make you feel stressed and you don’t need that if you are in the middle of a crisis.
When you are monitoring your credit spending, there is a lower chance that you will end up with too much debt. If you see your debt levels rising, you can do something to stop adding to it. This will put you in control of your debt and financial situation.
Know how you’ll pay it back
Finally, to be a better credit user, you have to know how to pay back your debts. Even if you are in the middle fo a crisis, you still need to have a repayment plan in place. What will you do if your debt levels are getting bigger and you still don’t have a stable job to help pay it off? Well, you can talk to your creditor to ask for a repayment plan that you can afford. Or you can apply for financial hardship.
Although you cannot pay off your debt right now, you’ll still be responsible if you know what to do about it. There are options that you can do to make sure that your inability to pay off debt will not make your financial situation worse. Make sure you are aware of these options so you’ll know what to do when the time comes.
2 reasons why you need to be a better credit user
Being a better credit user seems like a lot of hard work. But the truth is, it’s worth the effort. And you will only be working on this at the beginning. It’s a habit that you need to get used to. Once you get used to it, you will not have to exert too much effort to be better at managing your use of credit.
Besides, this is really effective in helping you improve your finances regardless of the current economic situation. It can bring you two important benefits.
You can use credit confidently
First of all, being a better credit user will allow you to use it confidently. You don’t have to be scared of maximizing the opportunities that you can get from using credit. You may find it hard to believe but yes, using credit can be beneficial. It can help you access things that you normally cannot do with cash. But since you have the right habits when it comes to using credit, you know when to stop. And that is where the other benefit comes in.
You can protect your future
If you can use credit confidently, you have what you need to protect your future. You know what to do so that you won’t compromise it. And one of the easiest ways to make sure that you won’t do that is by keeping your credit levels from going too high. Because having a lot of debts can make your future less secure. But since you know how to get it under control, you should be able to protect your future self from suffering because of your debts.