Dealing with an abrupt, damaging financial event like a cut in your working hours is difficult enough. Doing so in the middle of a global pandemic, as new cases of COVID-19 emerge daily and major U.S. cities essentially shut down, can be overwhelming. But if that’s where you are now, or fear you soon could be, using your credit cards strategically could help you get through.
To be sure, credit cards come with their own costs, risks and limitations. It’s possible to rack up high-interest debt, which can put you in a more precarious financial situation. If you’re already feeling the squeeze from credit card debt, adding more might not be an option. Seeing if you qualify for a credit card hardship program instead could be a good move.
Credit cards can keep someone afloat for only so long. The debt eventually has to be repaid, so they’re not a solution to a permanent loss of income. But when you’re faced with a short-term disruption to your earning power — reduction in hours, loss of tips or temporary layoff — they can be an accessible way to ride out the storm while keeping costs low. Here’s how.
1. Preserving cash
If you have limited cash available, you may need it for essential expenses you can’t pay with credit, such as rent or mortgage payments or, in some cases, utilities. Using a credit card for other purchases allows you to float those costs so you can make your cash reserves last longer.
Carrying debt from month to month generally means paying interest, so this flexibility does come at a cost. However, if you’ve been paying your credit card bills in full up to now, you can buy some time interest-free by making use of your grace period. When you pay off your entire statement balance, new purchases won’t start gathering interest until your next statement’s due date. That means you can get 50 or more interest-free days between making a purchase and paying it off: the 30 or so days in a typical billing cycle, plus the 21 to 25 days between the end of the cycle and the due date.
What to know
Grace periods come with some limitations. They apply only to purchases, not to balance transfers or cash advances, which will typically start accruing interest right away. Also, if you don’t pay all balances in full in the previous billing cycle, there’s no grace period. Purchases will start accruing interest the day they’re processed unless you have a 0% APR offer.
2. Buying time, sometimes at 0%
In a crisis, income can fall off a cliff with no warning while expenses continue to pile up. Credit cards can spread out that impact, “flattening the curve” of your expenses and giving you time to adjust. This can especially blunt the hit from one-time or infrequent expenses you might have otherwise paid all at once — a repair bill, for example.
It’s not ideal to carry balances on credit cards with high interest rates if you can avoid it, though. Over time, interest charges can pile up and make that debt harder to manage. If you have good credit, consider getting a credit card with an introductory 0% APR offer on purchases; many of these have interest-free periods of a year or longer.
What to know
Even with a 0% APR credit card, you’ll still have to pay at least the minimum every month. Generally, you’ll also need good or excellent credit (credit scores of 690 or higher) to qualify for a card with an introductory 0% APR offer on purchases. If you can’t qualify for a 0% APR card, you’ll have to pay regular interest rates, which could add to your debt.
3. Reducing the cost of existing debt
When money is tight, high-interest debt — such as old credit card balances — can snowball out of control. In some cases, the interest charges can be so high that paying just the minimum hardly makes a dent in the balances.
To pump the brakes on interest charges, consider a balance transfer and moving debt to a card with 0% APR on balance transfers. With such a card, you’ll potentially get a year or longer to pay down this debt interest-free. That gives you the flexibility to focus on other, more pressing financial obligations in the short term.
What to know
You generally need good or excellent credit to qualify for the best balance-transfer cards. And moving debt usually isn’t free; most credit cards charge balance-transfer fees of 3% to 5%.
Sometimes, issuers also offer balance-transfer deals to existing cardholders. For instance, you might get convenience checks from an issuer in the mail that count as balance transfers and come with a lower APR (if not 0%, at least lower than what you’re paying). If you can’t qualify for a new card, check your email, snail mail or online account portal for offers like these. And as always, make sure you understand the terms before making the request.