When a recession is looming (or already here), you may wonder how to best handle your finances. After all, a recession—a period of time when the economy takes a deep dive—can trigger financial stress. Will you lose your job? Will you be able to keep up with everyday expenses?
With financial concerns like these swirling around in your head, you might decide to cut back on spending, boost your emergency fund or reassess your retirement savings. You might also be curious about how credit cards can figure into your recession survival strategy. Used wisely, credit cards can offer easy access to a line of credit when you need it most, reduce expenses through cash back rewards and provide a variety of valuable perks.
Monitor Your Credit Card Use
A recession isn’t the best time to rack up credit card charges for those cute shoes you’ve been eyeing or that big-screen TV you’ve been coveting. Instead, focus on using credit cards as tools to help you make it through a recession.Set Up Alerts
To keep from running up too many charges on a credit card, think about activating account alerts that notify you when a purchase exceeds a certain amount (like $500) or the balance creeps close to a certain level (such as $5,000).Automate Bill Payments
Juggling your finances during a recession is nerve-racking enough. You don’t need to add to your stress by missing payments. Therefore, it’s a good idea to automate credit card payments so you don’t miss a due date and possibly get slapped with late fees or a penalty APR, Woroch advises.Reduce Card Debt
To help shield your finances from the impact of a recession, try to pay down as much of your credit card debt as you can. Our credit card payoff calculator is a good place to start.Avoid Carrying a Balance if Possible
Ted Rossman, senior industry analyst at Bankrate, cautions that you should pay off credit card charges as soon as you can, to avoid piling up interest—every two weeks, if possible. Ideally, you should clear a balance before the credit card issuer tacks on any interest at all.If Not Possible, Lean on a Card With Zero Percent Apr
If you forge ahead with credit card spending during a recession, and find you must carry a balance, your best bet may be to depend mostly, if not exclusively, on a good zero percent APR credit card. A zero percent APR card lets you temporarily avoid interest charges on purchases or balance transfers during a certain window of time, such as 15 months.Create a Budget
Lokenauth suggests setting up a household budget (if you don’t already have one, of course) so you can better manage your credit cards and the rest of your finances. He emphasizes that all sorts of software, websites and apps can help you construct and maintain a budget. Using Bankrate’s Home Budget Calculator is a great place to start.Use Rewards to Counter Inflation and Rising Interest Rates
Yes, rewards can be a valuable aspect of a credit card. Rossman notes that it doesn’t make sense to carry a balance for a long time at an APR of 18 percent in exchange for earning, say, 3 percent in cash back or travel rewards. In that scenario, the math probably doesn’t add up in your favor.Maximize Cash Back
Start by making sure you have one of the best cash back cards in your wallet. To ensure you’re squeezing the most you can out of cash back rewards, plot a strategy for which ones to pull out of your wallet and for which purposes. Here’s one potential strategy:Credit card with 2 percent cash back on all purchases. Use this as your everyday card. Example: The Wells Fargo Active Cash card offers a flat rate of 2 percent cash back on all purchases.
Credit card with 3 percent cash back on gas and grocery purchases. This card can be particularly helpful in fighting recession-triggered inflation. Example: The Blue Cash Preferred® Card from American Express provides 3 percent cash back at gas stations and 6 percent cash back on U.S. supermarket purchases.
Credit card with 5 percent cash back on travel. Example: The Capital One SavorOne Cash Rewards Credit Card delivers 5 percent cash back for hotel and rental car bookings made through Capital One Travel.
“One of the best ways to save on your everyday expenses is by having a credit card that gives you flexibility both in the way you earn and in the way you redeem rewards,” says Elly Szymanski, assistant vice president of credit card products at Navy Federal Credit Union. “If you’re in a financial place where you can handle multiple cards in your wallet, this could also help maximize the value you get in return, as different cards have ongoing rewards for different types of spending.”
Take Advantage of Credit Card Perks
The perks of a credit card might be just as valuable, if not more so, than the rewards it provides. For instance, your card might qualify you for purchase protections, extended warranties or roadside assistance. Or you may be able to score discounts on meals, car rentals, household services or clothing—from Amex Offers, for example, or from Visa.Ask for Help When Needed
If a recession has battered your finances to the point that you’re struggling with your finances, don’t be afraid to seek help. You may be able to negotiate a payment plan with your card issuer that lowers your monthly payments, for example. Or you might reach out to a nonprofit credit counseling agency to help you climb out of a financial hole.The Bottom Line
A recession, particularly when it’s coupled with inflation, can produce a lot of anxiety. In a July 2022 survey from Allianz Life Insurance Co. of North America, 66 percent of Americans said they feared a recession was right around the corner and 82 percent said they were worried about rising inflation chipping away at their purchasing power.Fortunately, you may be able to ease at least some of your recession or inflation anxiety by wisely incorporating credit cards into your day-to-day finances. During rocky financial times, credit cards can help smooth things out by enabling you to cover emergency expenses, reap rewards on everyday spending and capitalize on money-saving perks.
