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Much of the advice you see about using credit cards wasn’t written for people coping with a financial emergency. When you’re faced with a sudden disruption in your income — whether related to the COVID-19 pandemic, a natural disaster or some other serious issue — some of the basic “rules” about credit cards become unrealistic, if not impossible, to follow.
It’s not that the rules aren’t sound advice. When times are good and you’re living within your means, using credit carefully, you shouldn’t be carrying debt month to month, for example, and you should be angling to get maximum value from your credit card rewards.
But times aren’t always good.
The whole point of having access to credit is that you can tap it when you need it, and practicing good credit habits in good times means you’ll have flexibility when disaster strikes. Credit cards aren’t a substitute for income, but in an emergency, you can use them to survive a disruption in your income. That means giving yourself permission to break a few of the “rules” until the crisis passes. Here are seven of them.
1. 'Never carry a balance month to month'
Why you can break it in an emergency: Credit card debt is expensive, but if the alternative is to go without necessities, or if you need to preserve cash for the things you can’t get with credit, the cost may be worth bearing.
This “rule” stems from the high interest rates most credit cards charge on balances you carry from one month to the next. When you pay in full, you aren't charged interest. But carrying balances means paying interest at annual rates that can exceed 20%. Carrying debt at that rate over a long period can be extremely expensive. But in a crisis, we might be not talking about a prolonged period. In a short-term cash crunch, paying less than the full monthly credit card total can help you stretch your resources.
Say you have a credit card bill of $1,500 with an APR of 20%. Pay off just $500, rather than the full balance, and the remaining $1,000 will cost you about $17 in interest for a month. Whether that’s an acceptable price to pay depends on your individual situation, but it’s not “wrong” to accept it. One idea to consider, though: Call your credit card issuer and ask for a break on your interest rate, at least in the short term, or for the option to delay your payment.
Another reason behind the common advice to never carry a balance is the idea that if you buy something you can’t pay off immediately, it could indicate that you’re living beyond your means — you’re buying things you can’t “afford.” But people who lose their income often can’t “afford” many things, strictly speaking. It’s not irresponsible to charge what you must to get through the crisis.
2. 'Pay more than the minimum amount due'
Why you can break it in an emergency: Paying only the minimum keeps your account in good standing when access to credit is critical. It won’t do much to reduce your debt, but it can help you stay afloat.
The minimum payment specified on your credit card statement is typically just a small percentage of what you owe, enough to cover the previous month’s interest and a bit of the principal. Paying just the minimum won’t make much of a dent in your debt, and if you make a habit of it, you’ll be in debt longer.
In a crisis, however, budgets and priorities shift. If your choice is between paying more than the minimum due or using that extra money to buy groceries, pay your mortgage or cover utility bills, then deferring your credit card payoff until next month or beyond might be the right choice.
It’s only temporary relief, but making the minimum payment on time each month will keep your account open, and you’ll avoid incurring late fees or penalty APRs. You can attack the debt more vigorously once the crisis passes.
3. 'Keep your credit utilization under 30%'
Why you can break it in an emergency: Using “too much” of your available credit can pull down your credit scores, but the damage isn’t permanent.
Credit utilization refers to how much of your available credit is in use. It’s a major factor in your credit scores, and the lower your utilization, the better for your scores. In normal times, it’s best to keep it below 30%, and staying under 10% is even better.
But going over the utilization threshold doesn’t do lasting damage to your credit score the way a missed payment does. (Current scoring models look at your current utilization, not utilization history.) And using a higher percentage of your available credit for a period of time could be exactly what you need to do to buy groceries and other essentials during an emergency. When the worst passes and you’re able to get your utilization back down, your scores can recover.
If you have good credit but anticipate that income disruption could be in your future, consider expanding your available credit, both to keep utilization down and to simply gain flexibility. You could apply for a new credit card or seek a credit limit increase on the cards you currently have.
4. 'Redeem rewards for maximum value'
Why you can break it in an emergency: If you need money just to make ends meet, it doesn’t make sense to sit on hundreds of dollars’ worth of rewards, even if converting them to cash means getting less value per point than using them for something else.
When you’re financially secure, it’s smart to redeem credit card rewards only for the most valuable option. Travel credit cards, for example, usually offer more value per point when you use your rewards to pay for travel than when you redeem them for cash or for a credit on your statement. In an emergency, though, travel may not be a priority. And in this pandemic, it might not even be an option. Stockpiling travel rewards for the future makes little sense if you’re struggling in the present.
Give yourself permission to redeem rewards for cash, even at a lower value, to pay for essentials or start an emergency fund. It might sting to cash in points for 1 cent apiece when you could get, say, 1.25 cents by redeeming them for travel, but $500 in cash can be much more useful in a crisis than $625 worth of hypothetical travel.
This rule-breaking strategy also applies to how you earn credit card rewards. When making a purchase, don’t obsess over which card would earn you the highest rewards rate. It may make more sense to put spending on the card with the lowest interest rate, or a card that lets you redeem rewards in any amount, rather than requiring a minimum redemption. You may find it more useful to put all expenses on a cash-back card to get the full value of rewards from the start.
5. 'Credit cards aren't an emergency fund'
Why you can break it in an emergency: Not everyone has been able to stash money in a contingency fund, and when disaster strikes, it’s often too late to start. You may have to lean on your credit to get through.
The rule of thumb when it comes to emergency savings is to stash away enough money to cover three to six months' worth of living expenses. If your income is interrupted and your bills are piling up, an emergency fund can keep you afloat. But according to Federal Reserve data from May 2019 — well before COVID-19 threw people’s finances into chaos — 4 in 10 adults in the U.S. lacked the ability to cover the cost of a $400 emergency expense, either with cash or a credit card they could pay off in full when the bill came.
The reality is that expenses continue to pile up whether you have savings or not. If you need money to bridge a gap, your credit cards can provide some spending power. Yes, credit cards charge interest on any balance you carry. But the interest rate on purchases is much lower than what you’d pay on a payday loan or, usually, a credit card cash advance. Once your situation becomes more stable, you can begin to pay down your debt as aggressively as your budget allows.
If your credit is good but you’re worried about a short-term loss of income, you may consider applying for a card with an introductory 0% interest period. You could get a year or more to pay off your emergency expenses before interest kicks in.
6. 'Don't just park debt at 0% — pay it off'
Why you can break it in an emergency: Transferring a high-interest balance to a credit card with a 0% introductory APR period can buy time when you need to preserve your cash for necessities. The debt must eventually be paid, but that can wait.
Making the most of a balance transfer generally means paying off the transferred debt during the 0% APR period, before the regular interest rate kicks in. If a card gives you 15 months at 0% APR on balance transfers, for example, you could avoid interest completely by paying off the debt within that time frame.
But in a crisis, when preserving cash is a top priority, making the most of a 0% APR period looks different. In situations like these, when you need to buy time and hold on to cash, it can make sense to pay just the minimum amount due each month. That might mean reaching the end of a 0% period with a balance still outstanding and paying the ongoing interest rate, or moving the debt again and paying another 3% to 5% balance transfer fee. But for the duration of the crisis, you can focus on staying financially afloat and covering basic expenses.
If you have a deferred interest offer on a store card or medical card, paying it off before the end of the promotion could be a higher priority. Unlike with true 0% APR cards, these cards hit you with huge retroactive interest charges if you have any remaining balance, even a few dollars, when the promotion ends.
7. 'Don’t hurt your credit score'
Why you can break it in an emergency: You build good credit so that you can fall back on it when you need it. This is when you need it.
Your credit score isn’t a trophy. It’s a tool.
Building and maintaining good credit is important, but it’s only a means to an end — having access to credit when you need it. If you can’t tap your credit in bad times, if you can’t benefit from all the work you put in to establish good credit, then that good credit score doesn’t carry much value.
In an emergency, you shouldn’t prioritize your credit score over feeding your family, over keeping a roof above your head, over being safe. If you need to take action that hurts your credit — running up a high balance to cover necessities, applying for a new card or even missing a payment — so be it. There are steps you can take to minimize the damage, such as calling your card issuer to discuss reducing payments or requesting a credit card limit increase. Make use of your options, but in the end, your score can recover. For now, just do what it takes to get through.
NerdWallet writers Melissa Lambarena, Sara Rathner, Claire Tsosie, Erin El Issa, Kenley Young and Paul Soucy contributed to this article.