Credit Card Mistakes to Avoid During Hard Times

Author: Johnnie Medrano, Vice President, Regional Retail Sales and Services Manager 07/17/2023

Whether you’re experiencing job loss, a recession, or some other type of financial hardship, credit card debt may seem inevitable. But there are credit card mistakes to avoid during these hard times that will help protect you from making unwise decisions.

Spending as Usual

When grocery costs are higher, job stability is an issue, or your rent, mortgage, and utility costs are rising, it’s better to avoid using a credit card. You should not be spending as usual. Actual money versus credit is key during hard times.

Creating a new budget will help you stay on track and identify what’s necessary. Determine where you can cut spending. Once you realign your budget, decide what can be paid on hand or on credit. Credit should always be a last option, not the first.

Relying on Your Credit Limit

During hard times, credit card companies may also be struggling. As a result, they may choose to change your credit limit or terms. Credit card companies have the right to reduce your limit without your approval. When you rely on credit limits, you’re relying on something you may not really have. You aren’t considering what you may not have in the future.

Carrying a Balance on a High-Interest Card

Carrying a balance is not recommended. But if you must, make sure it’s on the lowest interest rate card you have. Because if you didn’t have the money to pay the card off to begin with, that debt is only going to get larger. That interest is compounded. So, on the next month’s credit card statement, you’re going to pay interest on top of your interest. If you continue to carry a balance on your credit card, that interest continues to grow. If you forget to budget for that interest, it could get you in financial trouble.

Late Fees

If you thought compounding interest was bad, late fees aren’t any better. If you do the math on a late fee, they’ll cost you way more than what your interest is. They’re expensive, and they’re the same, regardless of the balance you owe.

For example, if you have a $20 balance, the late fee may be $29.99. That’s money you’re paying in addition to something you purchased. You’re then going to pay interest on that late fee balance, as well. Also, when you pay late fees, your credit score is impacted. If you pay late multiple times, the credit company may question your ability to repay a debt and may raise your interest rate.

Cash Advances

A cash advance provides a short-term cash loan at a bank or ATM. You may do this to purchase something that requires a cash payment. This is not recommended due to the high fees involved. The fee is typically much higher than your interest rate. So not only do you get charged for the cash advance, but interest on the cash advance. Credit card companies will collect on the balance and the cash advance itself. If you need to pay cash for something, and don’t have the cash on hand, pay it with your credit card instead of a cash advance.

Just keep in mind, when you’re experiencing hard times, you should not be utilizing credit unless you are using it in a smart way and have the ability to pay off the debt. If you are charging to your credit card, you should ideally be disciplined enough to pay it off the same month to help build your credit, not hurt your credit.

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