Credit card rules are important. Following these rules will help you manage how you use your credit cards. It will help you control how you use it and make sure that it will not be abused. Your knowledge of these rules will allow you to confidently use it without endangering your personal finances.
Ideally, you have to follow these rules every time you use your credit cards. Otherwise, you might be in danger of spending too much on your cards. That can make your debts grow significantly. And if you factor in the high-interest rate, your debts can quickly reach a level wherein it will be harder for you to pay it off.
But what if you are in the midst of a crisis? Will these credit card rules still apply?
According to a survey, a lot of people were forced to use their credit cards to pay for a lot of essentials they needed in March and April of 2020. This was during the time when people were forced inside their homes to avoid being infected by the coronavirus.
Because of this, they were forced to stop going to work. For a lot of people, that meant they did not receive their monthly salary. Since they were forced to stay indoors for a time, they had to buy a lot of essentials in bulk. To make the purchase, most of them had to use their credit cards to help them preserve their cash.
This resulted in a huge increase in credit card debt. Not to mention the fact that there were a lot of credit card rules that were broken because of this.
And with the recession weakening our financial situation further, our credit card debt is bound to get worse.
Credit card rules you can stop following during a crisis
We want to make sure that we stick to the rules when it comes to our credit cards. But the reality is, there are instances when we will be forced to break those rules. Economic situations and financial difficulties can justify the need to ignore some of the credit card rules that we should be living by.
So what are these rules? Here are 5 of them.
Pay your balance in full
To keep yourself from paying the finance charges on your credit cards, make sure you pay your balance in full when the billing statement comes.
But if you are experiencing financial difficulty because of the recession, it’s okay to break this rule. A survey revealed that 17% of their respondents carry more than $10,000 worth of credit card debts. Obviously, this will be hard to pay off all at once. So it’s okay to carry a balance over to the next month. After all, you will not do this all the time. The recession will end over time. But you need to survive it first
Hold on to your cash and don’t feel guilty about using a credit card even if you can’t pay the balance in full.
Give more than the minimum payment requirement
This is one of the most common credit card rules that you need to always do. Paying only the minimum requirement of your credit card debt is not a good idea. The high-interest rate will make your balance grow significantly. This is why you have to pay more than the minimum payment requirement.
But if you are in the midst of a financial crisis, then it’s understandable if this is hard to do. You hardly have enough cash to pay for your basic needs. You will not pay more than what is needed towards your credit cards. You want to reserve as much as you can for your basic needs. And if you want to at least keep a good credit score, you need to stick to the minimum payment requirement. It will not take too much from your finances. But it will keep you from being delinquent.
Of course, if your finances will really need to be conserved, you can stop making payments altogether. But make sure that you talk to your creditor and ask for financial hardship. They will allow you to stop making payments for a time without it damaging your credit score further.
Maintain a credit utilization rate that’s lower than 30%
To keep a credit score good, you have to keep your credit utilization rate 30% or below. That means if your total credit limit is $10,000, you can only borrow up to $3,000.
Again, if you are in a financial crisis, it’s okay to go beyond this. If there is a need for you to buy the essentials that will help your family survive, go ahead, and use your card. Your survival and the comfort of your loved ones is more important than your credit utilization rate.
Stop stressing about it and focus on what matters most at this point in time.
Keep your credit score high
We all want to keep our credit score up. Having a good credit score will help open a lot of financial opportunities for us.
However, if you are in the midst of a recession, this will be harder to do. Especially if you are relying on your credit cards to pay for basic necessities. As you keep on using the card, it will not just affect the credit utilization rate. The financial crisis will cause you to miss out on payments. And according to a recent survey, a fourth of the American population are worried that missed payment will drag their credit score down. And the current crisis will end up making people miss payments.
And in light of the crisis, you have to be okay with that. You know why? Because your family’s survival is more important than a credit score. The situation is stressful already. If you think about your credit score, it will make things worse. And you need to keep a clear head if you want to figure out a way to make things better.
Don’t use your credit card as an emergency fund
A lot of people are using their credit cards as a source of an emergency fund. They do not take saving cash seriously. They know that they can always rely on using their credit card in case they need to go to the hospital. Or if they need to have their car repaired. But if you go through one crisis after another, relying on your credit cards will only lead to a huge amount of debt. This will really hurt you financially.
This is why one of the financial lessons that you should have taken seriously before the crisis is to save up for an emergency fund. This would have helped you get the cash that you needed to survive the current crisis that we are going through.
While an emergency fund would have been very helpful, the current events of 2020 would have depleted most people’s savings. After the coronavirus pandemic, we were plunged into a recession. People lost jobs and some are burdened with huge amounts of medical bills. It’s hard to survive on just your emergency fund alone.
If this is your case, then using your credit card as part of your emergency fund makes sense. Don’t keep yourself from this financial source if it will help your family survive.
2 credit card rules you should never ignore
While we’ve been discussing the credit card rules that you can bend during a crisis, there are two important rules that you should never ignore. No matter how bad things get or how much debt you accumulate, you should never stop following these rules.
Monitor your credit spending
The first is credit monitoring. Every time you use your credit card to pay for anything, you have to take note of that. If you have a spending plan, you have to make sure it’s aligned with how you use your credit card. This will allow you to track your expenses. When you are monitoring your spending behavior, you get to be more cautious about how you use your credit cards.
Since you are monitoring your credit spending, you can stay in full control over it. If you’re starting to overspend, you can do something to ensure that you will not go overboard and pull yourself into a deep debt pit.
Use credit with a purpose
The second of credit card rules that you should always follow is to use credit with a purpose. Don’t just use credit because you want to. It has to have a purpose. This will help you decide if an expense is necessary or not. If it’s not necessary, you have to skip using your credit for it. You need to reserve it for more important expenses. Like your basic necessities. Or an emergency expense that might save your life. Your credit card has a limit. You have to remember that. If you cannot control your spending and you reach that limit, you cannot use it anymore. Not to mention the fact that you cannot pay it off because of the recession. So don’t exhaust this source of funding if you don’t have to.