With the worry of a recession on the horizon, it is absolutely crucial to get your finances in order. Poorly planned expenses can quickly become unmanageable, especially when it comes to your credit card. These financial tools have made it a lot easier to go through with purchases, but you must consider the long-term implications.

This is mainly because the credit card uses are no longer limited to just a few types of transactions. You can now use most credit cards as a cash card or as a tool to get a short-term loan instantly.

Considering these privileges, it is well worth it to take a measured approach when using your credit card before or during a recession. To help with that, here are a few ways to handle your credit card during an economic downturn.

Be Mindful of Luxury Expenses and Recurring Payments

Credit card deals and offers can be very attractive, sometimes urging you to spend more than you can afford. This problem gets compounded when you consider the fact that most issuers allow you to split large payments into instalments. However, be mindful of your spending.

During an economic slowdown, cut down on luxury expenses and divert money towards a rainy-day fund. Additionally, keep tabs on recurring payments such as subscriptions to online services. These are generally a small sum every month, at staggered intervals, and you may not notice the true impact on your finances.

A good way to approach such payments is to take stock of all the recurring payments on your credit card. Accordingly, decide if you wish to continue availing these services for the coming months. For those that you can do without, simply pause payments until you are ready to subscribe again.

Utilise Any Unused Reward Points

Credit card reward systems usually offer points for a wide range of transactions. You may have accumulated these points over several months of regular usage, and now is the time to redeem them. You can avail these for deals and vouchers at retailers.

Use this system efficiently to save money, as this helps during a slowdown. Alternatively, some issuers even allow you to get cash against your reward points. Do note that a conversion ratio may be applicable, but this is also a smart way to use your credit card points. 

Do note that these points expire after a certain period. Keep tabs on these dates and use your points as needed to save money and extract maximum value from your credit card usage. 

Pay the Credit Card Bill in Full

When it comes to paying your credit card bill, you have two options – full or minimum payment. With the former, you pay the entire outstanding amount before the due date. With the latter, you pay only a set amount, which is lower and listed in the statement.

During a recession, you may be inclined to make minimum payments and save money. However, this isn’t ideal as it only adds to your outstanding amount in the following month. As such, it increases the chances of default and of you incurring hefty penalties. 

Regardless of the economic climate, you should pay your dues in full. Doing so is the mark of responsible borrowing and works to safeguard your financial wellbeing in the long run.

Work to Clear Any Outstanding Dues on Priority

Amid the threat of a recession, you still have some time to work on your finances. An immediate strategy should be to work on clearing any outstanding credit you may have. This is because a credit card is a very expensive credit instrument.

You will find that the interest rates applicable on loans or late payments is much higher than other instruments. As such, you should focus on clearing these debts before the economic downturn worsens. Thankfully, there are ways to go about it and handle it efficiently.

For one, you can always prepay your dues whenever possible. Ideally, you should budget for such payments and adjust your other expenses accordingly. That way, there is a structured plan in place to get these outstanding dues cleared.

Another option is to negotiate with your issuer, in case you notice that certain payments may soon become unmanageable. Many issuers will have provisions in place to help you keep up with payments without incurring hefty fines and penalties.

In any case, you should explore these options early on. This way, you won’t have to deal with increasing debt alongside the challenges brought on by the recession.

Opt in for Payment Alerts and Other Automated Services

Missing payments, especially during an economic slowdown, can be very hard to manage. This is because you will also get penalised for defaulting, which adds to the burden. To avoid this, opt in for payment alerts. These inform you before the due date, allowing you to pay on time. Alternatively, you can set automated standing instructions with issuers, and have payments go through on time.

While the typical credit card uses generally centre around shopping, modern issuers do offer specialised perks that can come in handy. A travel card, for instance, is still a viable choice in a recession, if you are a frequent flyer. The reward system alone can help you save money and extract greater value from your bookings.

Remember, recessions usually lead to tighter budgets, dips in income, and other financial issues. As such, the main takeaway is to employ a calculated approach and minimise the dependence on new credit. This will help keep your finances healthy all through the downturn.

“This article is part of sponsored content programme.”

comment COMMENT NOW