Should you use credit cards over cash even if you are in the midst of a crisis?
If you think about it, adding more to your debt is not a good idea. You are in the middle of a crisis. Who knows when this will be over? Or if things will get worse from hereon. Increasing your credit balance will only make it harder to recover.
But that’s probably not what people are thinking about when the coronavirus pandemic hit. People used more credit cards instead of cash. It was only a slight increase – since there were stimulus checks and other benefits provided by the government. People still have something to spend while they try to ride out the pandemic and the recession that resulted because of it.
The thing is, we all know that cash will run out soon. If the economy does not recover and if people keep on losing their jobs, it’s not unlikely that people will start to use credit cards to make ends meet.
The question is, how will you know when you should start using credit cards over cash?
When to use credit cards over cash
If you still have cash with you, do you need to wait until it’s depleted before you use credit cards? Or is it possible for you to use it even if you still have some cash with you?
There are certain signs that will tell you that you don’t have to impose a cash-only rule during a crisis. Holding on to your cash reserves has some benefits. In case something happens, you still have extra cash that you can use.
Here are the 4 signs that will make it okay to use credit cards over cash.
Your balance is low
Have you been diligently paying off your credit card balance? If yes, then you probably have a low balance right now. This is a sign that you can start using your credit cards to pay for your basic necessities.
But what does a low balance really mean? If you don’t have any balance, that’s the best scenario for you. Then again, how can you say that your balance is low?
You can start by looking at your credit utilization rate. Is it below 30%? For instance, your credit limit is $10,000. If your balance is below $3,000, then it’s okay for you to start using your credit cards. Just make sure you stay below a 30% credit utilization rate if you can. Choose carefully the expenses that you will put on your card.
You can still afford to pay your monthly bills
Another sign that it’s okay to use credit cards is if you can still afford to pay your monthly bills. A lot of people lost their jobs – millions already. If you are one of the lucky few who still receive an income, use it wisely. Save your cash and make sure you budget it well.
Keep using your credit cards so you can take advantage of rewards. Make sure you stick to your monthly budget. That way, the money that you are still earning can be used to pay off your balance in full. This will keep you from paying for any finance charge. It would be like paying in cash because there will be no interest rate to add to the payment. And if you consider the rewards or loyalty points, you might even get more out of it.
Your emergency fund is depleted
We save up for an emergency fund because we want to use it during times like these. When there’s a crisis, we don’t feel panicked because we know that we have enough reserve funds to get us through it.
But the reality is, no matter how much money you have in this fund, it will run out. This is especially true if you go through one crisis after another. The events of 2020 proved that to us. First, it was the pandemic, then it became the recession. It’s no wonder people are panicking. They are running out of cash – even their emergency funds.
So what will you do when this happens? This is one of the times when it’s okay to use your credit cards without feeling guilt. You prepared for it but things like this are really beyond your control.
You can enjoy a 0% or low transaction fees
Finally, if you have a credit card that has a very low-interest rate, you can also use it for purchases. Even if you accumulate a balance, it will not cost you a lot even if you have to pay finance charges.
Of course, this does not mean you should be careless about it. But if you really have no choice but to use credit cards, you know that it will not put you in a deep debt pit. Just make sure that you will be strict with its use. It will only be for necessary purchases. If you don’t need it to survive, don’t buy it.
Perks of using credit cards over cash
According to reports, there are 24% of Americans who feel more at ease when they use cash. But if you don’t have a choice, it’s really okay to use credit cards. There are even specific benefits that you can enjoy.
Safe from theft
One of the most common benefits is safety. When you carry cash and a thief got your purse or wallet, that’s gone forever. But if you don’t carry cash because you prefer to use a credit card, it won’t mean a loss for you just yet. As long as you act quickly and you call in the theft, the creditor can freeze your account so nobody can use it. This means the thief won’t be able to use the card to make purchases and steal from you.
Valuable rewards program
Credit cards also have impressive rewards programs. You can earn cash backs, loyalty points, and a lot of freebies. Every time you use it, the creditor will take note. If you know your rewards program well, you can use these freebies. Take advantage of it. This can really help you save money in the long run. You may be able to benefit from the rewards when your finances become really tight.
Finally, this can also be beneficial for health reasons. Using cash means holding something that was passed from so many hands. Can you imagine the dirt in it? We’ve never really thought about it until after the pandemic happened.
But when you use credit cards, you don’t have to get anything from the cashier and vice versa. They just have to hold the card terminal and have you swipe your card. That will keep germs from being transferred.