June 04, 2020
I want to make sure that all of you are up to date on my recommendations for the smartest credit card moves if your household is dealing with a loss of income during the current crisis.
Use your card, not your savings for essential expenses. If you don’t have enough monthly income to pay your essential bills, I would rather you use your credit card rather than dip into emergency savings. Right now, I think it is so very important to keep as much cash as possible. We don’t know how long the economy will take to begin to grow again, we don’t know what job growth will look like, and unfortunately, we don’t have a clear signal from Washington what will happen to the current $600 weekly unemployment supplement when the CARES stimulus funding of that payment is scheduled to end on July 31st.
I also think it is more than okay to just pay the minimum due on your credit card balance for now. I would rather you put more money into your savings account. But if you will be paying the minimum due, and you have a strong FICO credit score, please contact your credit card issuer and politely ask for a lower interest rate. Don’t be shy. Don’t give up easily. (If the first person you speak with says no, ask to speak with a supervisor.) I know it can take time to get through to someone. And I know sometimes you get someone clueless. Keep at it. And come over to my new App where you can get inspiration from our community. I was thrilled to see one member who told me that she spent time contacting all her card accounts and was successful 90% of the time getting a lower rate.
Use every card. If you have a card or two you just keep safely tucked away, but don’t use it, I think that’s so smart. It’s a great way to maintain a higher credit limit which can help you boost your credit score. (Your debt utilization ration tracks your overall card balances as a percentage of your overall credit limits. The lower the better.)
But here’s the thing: When the economy is weak, the banks that issue credit cards often look for ways to strengthen their operations. And that often means reducing the amount of credit they have extended to customers. Sometimes they cut credit card limits, and sometimes they just cancel cards. They are most likely to do this to customers who don’t actively use their card. To reduce the odds your card will be cancelled, use it a few times a month for some essential spending.
Check out a balance transfer deal If you already have an unpaid credit card balance and your card issuer won’t budge on reducing the high interest rate, don’t rule out a balance transfer deal. Do a web search of “best balance transfer deals” to find leads. There are still some banks offering zero-interest deals for a year or longer. Of course, it is becoming harder to qualify for these deals, but not impossible. And you have nothing to lose for applying. Keep in mind that most deals tack on a fee of 3% or so of the amount transferred. That’s not a small sum, but if it means you can avoid interest payments for a year or more, it’s still a good deal.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.