By now, many who've been laid off, furloughed, had our hours cut, or worse, are really running tight on cash, even as the pandemic rages on. While both federal and state governments have promised quick access to unemployment funds, stimulus checks, and other forms of help, these things take time. Time that you may no longer have. So, what are your options?
If you're fortunate enough to have credit available, you may want to consider using your credit cards to get you through the immediate cash crunch. However, you'll definitely want to sit down and consider all of your options first. If you're already in too deep with credit cards, racking up more debt might not be the best thing to do, especially if you don't have a plan to repay the debt once you get back on your feet financially.
But, if you do expect your cash flow shortage to be temporary, and you do have a plan to pay off the debt you incur, then you may be able to utilize your credit cards to get through it. By using your credit cards to pay when you can, you can save cash to pay for things like your mortgage, car payment, certain utilities, etc. This one move can give you the time you need to get through a cash crunch, whether that means going back to work, getting your stimulus check, or starting up unemployment.
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. Here’s how to find the best credit cards for every type of purchase.
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. Yes, credit scores can definitely be confusing. Here’s exactly what a credit score is.
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.