How to Protect Your Finances and Credit in Tough Times

Set yourself up to ride out setbacks by proactively managing your cash flow, credit and bills.
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Written by Amanda Barroso
Lead Writer
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Edited by Kathy Hinson
Lead Assigning Editor
Fact Checked
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Co-written by Bev O'Shea
personal finance writer

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Americans are not unfamiliar with hard times. Widespread events like a market crash, pandemic or recession can quickly test your personal finances, as can personal crises such as job loss or a cut in work hours.

Keeping in mind that preparation is better than panic and starting now is better than doing nothing, there are a few things to do to get your finances ready for tough times:

Take a look at your spending to find savings in your budget

Creating a budget makes you aware of where money is going so you can adjust when needed. Online tools can help you track your spending. A budget worksheet or app can give you a framework and help you remember expenses that don’t happen every month, such as car maintenance or subscription renewals.

Identify fixed vs. variable costs

Making a budget can also help you find fixed and variable costs. Fixed costs are regularly occurring expenses that are typically the same each month — think rent or mortgage, car and student loans, and cell phone payments. These typically are out of your control because they are set by your lender and the terms are locked in for long periods.

Variable costs, on the other hand, are things like grocery and clothing expenses, streaming subscriptions, gym memberships, dining out or other leisure activities. These change based on your patterns or seasonality. For example, your budget for clothing might spike right before your kids go back to school, and you might spend more on dining out during the summer, especially when traveling.

Earmarking variable costs shows where you have more control over spending, and it’s the first step in figuring out trade-offs. If you need a gym membership to support your mental health, great! But, that might mean you have to cut in other areas.

Know what to pay first if you can’t cover everything

There might be a time when you don't have enough money to cover fixed costs. In that case, be strategic about paying bills. If something has got to give, look at survival first. You need to cover food, utilities, shelter, as well as work-related expenses like transportation, cell phone and child care.

With the remaining bills, like credit cards or student loan payments, try to at least pay the minimums. That avoids credit score damage from missed payments, even if it means paying more interest. It's not ideal, but it's a short-term solution that can free up cash to put toward necessities.

If you have to skip payments, know that it will damage your credit, but you can rebuild it later when the crisis is over.

Set up — or bulk up — your emergency fund

Once you know where your dollars are going, you may spot categories to trim. Finding ways to save money can also help you start or bulk up an emergency fund, although some solutions (like refinancing your mortgage or paying off high-interest debt) might take some time to see the results.

When it comes to an emergency fund, you don't need a huge amount for it to make a difference. Even $250 in savings can help a family avoid pitfalls like missing a utility payment, according to a 2020 study by the Urban Institute, a Washington, D.C.-based think tank. Gradually building to $500 or $1,000 adds more protection against financial setbacks.

If you already have an emergency fund in place, don’t be afraid to use that money to make ends meet. While it can be scary to start dipping into savings that help you feel secure, that’s what it's for. You can build it back up later.

Guard your credit score

During financial hardships, you might find yourself putting more on your credit cards, especially if you don’t have an emergency fund or if most of your money is invested. Here are some tips to safeguard your credit:

Pay on time even if you can't pay in full

Paying on time is the most important factor in your credit score. It’s essential to make on-time payments if you possibly can — even if it means paying the minimum only and carrying a balance.

Keep credit utilization in mind

It might be tempting — or even necessary — to put more expenses on your credit cards than you normally would during hard times. Be aware that how much of your credit limits you actually use has a big effect on your score. Carrying a balance of more than 30% of the credit limit can hurt your score.

If your credit score is good (anywhere between 690-719), you could ask for higher credit limits or apply for a 0% introductory rate credit card. If your application is accepted, you will have to pay a transfer fee (usually somewhere from 3% to 5% of the total amount transferred) but this will give you a promotional period to make interest-free payments.

Use cash back and other rewards features to offset spending

Your credit card might have untapped benefits that can help you in the short term. For example, consider using your accumulated points to “pay yourself back,” converting earned points into dollars that go toward your statement balance. If your credit card has this option, it can help you pay down your balance and lower credit utilization — or create a little wiggle room in your budget for essentials or your emergency fund.

Consider hardship programs as a last resort

There are already some assistance programs available that suspend fees or cut what you have to pay. Consider contacting your credit card issuer or lender to ask about hardship programs. These programs typically offer a payment plan for a short-term period (something like three months, maybe longer) with reduced fees and/or lower interest rates. You may qualify for some leeway if you’ve experienced unemployment, serious illness, a natural disaster, divorce or a family emergency.

Before enrolling in a hardship program, however, you should consider how it might impact your credit score. Your credit card issuer might lower your credit limit, freeze or even close your account. That could harm your credit score by decreasing your total available credit (and, in turn, increasing your credit utilization) or affecting the length of your credit history, especially if this is one of your older credit cards.

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Have a plan for if you lose your job

A lingering downturn can lead to long-term job losses. If your field of employment is vulnerable, it's wise to keep your resume updated and take advantage of networking opportunities.

Losing your job can temporarily put your brain in a fog so deep it’s difficult to think about what to do next. Having a game plan to handle job loss, and a schedule of sorts, can give you a leg up.

Update your resume to highlight your most recent skills and experiences. You can also prepare for a potential job search by setting your LinkedIn profile as “open to work” but you may want to set that as visible only to recruiters so your current employer doesn’t see it.

Create a Plan B to bring in cash

If the paycheck from your main job is in danger of shrinking, an extra-money side hustle can be your friend. By thinking ahead, you can have your Plan B ready to go. If you lose your job, there are ways to keep an income coming in while you look for your next opportunity.

Some short-term money makers include things like selling gently used clothes, furniture, or baby gear or trading in old electronics. Scanning receipts into rewards apps like Fetch, Rakuten and Ibotta can help you rack up points — and eventually gift cards — for things you’re already purchasing. If you download a few of these apps and scan each receipt, you’re looking at multiple ways to earn with little effort.

Longer-term solutions could include taking on another job or side hustle. Plenty of people drive for rideshare companies or monetize their hobbies to sell online, but it’s important to note that those solutions often require upfront costs that might not be feasible for people experiencing financial hardship.

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