Credit Cards in Hard Times

Credit cards can be invaluable in case of an emergency, but you have to know what you’re getting into when you rely on them to cover unexpected costs.  Emergencies can range from higher than normal bills, job loss, a serious illness or medical situation, etc.  Whatever the circumstances, have a plan in place to deal with the consequences of large fees, higher interest rates, or credit card debt that may occur.

Imagine receiving an obnoxiously high utility bill that arrives in January, right after you’ve cleaned out your account to buy Christmas presents?  The mortgage and car bills are due, and you still need groceries for the month, so what do you do?  If you don’t have the money in savings and you are in jeopardy of having the power or gas cut off, then using a credit card with the lowest interest rate to pay is a solution.  It buys you time until you can pay your next bill, and as long as you pay off the amount in full, you won’t incur finance charges. If you can’t pay off the entire amount, make more than the minimum payment and pay it down as quickly as possible.  This goes for any bills you pay for with a credit card, and resist using a credit card to pay bills consistently, unless you pay off the card every month. Credit card debt is very easy to get into, and you don’t want to be paying interest charges on a gas bill from 2 years ago!

Many people live paycheck to paycheck, so if they lose their jobs it can be devastating financially.  Few people have enough savings to cover their expenses for more than 1 or 2 months, and this is where using a credit card to pay bills can help.  If you must live on your credit card while looking for another job, please remember to use the lowest interest rate card first, and if you don’t have a low interest credit card, change over to one immediately.

Inevitably in this situation, you will pay finance charges on any balances you carry, but as long as you only use the card for necessities, you can pay off any balances when you find work.  However, if you spend like you still have a job and don’t pay more than the minimum amount, you have set yourself up for serious trouble.  Prioritize the highest debt to lowest, taking into account the interest rates and fees.  Once you’ve done this, pay off the higher balance/higher interest card first, paying down each card until you are free of debt.

Medical emergencies can lead to financial disasters, especially if you don’t have health insurance.  Unfortunately, we cannot anticipate when these situations will arise and they can be very costly.  Credit cards can be an enormous help if this happens, but again, there are some guidelines to follow.  Depending on the circumstances, try to make arrangements with the hospital or healthcare provider to pay small amounts over time so that you don’t max out your credit limit.  They are normally willing to negotiate a payment plan as long as they feel they will be paid. 

A payment plan prevents you from paying the entire fees at one time.  Again, use the lowest interest rate card or transfer the balances to a card that offers one. Pay more than the minimum amount each month and pay on time.  Whenever you have extra money, put it towards the balances and you will be able to pay it off over time.