How to limit credit card usage during a pandemic

The way you treat your credit card shouldn’t change much during the quarantine. You’ll want to continue to pay your monthly statement in full to avoid interest and avoid purchasing items you can’t immediately pay off. This practice alone is enough to maintain, or even build, your credit score during a quarantine.

But if you’ve been furloughed or your income has taken a hit since the quarantine, consider other options. First, contact your credit card lender. Most banks are offering assistance to cardholders financially impacted by coronavirus. If your account is in good standing and you took advantage of a payment deferment, fee waiver or other assistance options from your bank, these allowances won’t affect your credit score. If you’re already sitting on credit card debt and want to avoid mounting interest, you could consider performing a balance transfer as well. By moving your existing debt to an intro APR balance transfer card, you can cut back on months of interest that would have cost you otherwise.

Create a budget which focuses on the difference between needs and wants. During this time of uncertainty one should only spend money on essentials since it is unclear whether or not one will lose his/her job, be put on furlough, or be faced with salary cuts. We also don’t know for how long these crisis conditions will continue. It is important to only borrow on credit cards what you can safely assume can be repaid in full in the coming months, if and when things return to normal. It is tempting to pay for delivery or shipping fees. If one is under severe budget constraints you should avoid doing that. Work with younger family members to deliver groceries, medicines and other essentials. Try to minimize the number of times one goes out. Look for emergency loans through the Paycheck Protection Program or other social services programs.

In the current situations, some of the most relevant factors impacting our credit scores include payment history, amount of debt, and number of credit cards. (1) Payment history is probably the most important one out of the three, it shows if we are paying our bills and other things such as mortgage and car loan. So do some personal financial planning and make sure after all the spendings, we can still comfortably make these payments. (2) It is what it is. For some of us, to get through this difficult time, we might have to use a little more debt. Technically speaking, credit card balances are also considered short-term debt. But having more debt will lower our credit scores. (3) When money is tight, our first thought is probably to get new credit cards. It is not uncommon for some of us to use one credit card to pay for another.

It’s difficult to limit usage as consumers are making more transactions in virtual environments. For example, many people are ordering essential items typically bought in physical stores like groceries, cleaning products, and personal items online. So while credit card purchases on these items might increase, consumers might also take efforts to delay non-essential purchases like clothing and entertainment items as budget constraints arise.

One simple strategy involves keeping your wallet away from your workspace and not storing credit card information with online retailers. If you make purchasing more difficult while you are actively trying to save, it makes it less likely that you’ll succumb to temptation in making non-essential purchases.

The same rules that apply during normal times apply during a lockdown. Rule number one is to limit spending, period. How you pay for something is far less important than how much you spend. If you don’t need a new dress, then don’t buy it. It doesn’t matter whether you pay for it with cash or a credit card. Make a list of things that would help you reduce spending. Leave your credit card in a drawer. Don’t browse things online. Delay purchases, even for just a few minutes. Tell yourself that you’ll buy the dress in 15 minutes, after you do the dishes. You won’t be able to do all of the things on your list, but that doesn’t mean that you can’t do any of them. “I can’t bring myself to delay 15 minutes, but I can delay for 10.” That’ll still help. You’ll find yourself being able to walk away from the purchase a few times, and each time, it’ll get easier to do. If you can’t bear to walk away, then delay another five minutes.

It is difficult to say how the economic crisis created by the pandemic will ultimately affect credit scores—and credit in general. Most creditors recognize the special circumstances we are in, and my guess is that “credit scores” will decrease, but will be interpreted differently after this is over. Millions of people will see lower scores as the pandemic continues. There are some things, however, those in financial difficulty should consider.

First, I hope everyone has taken advantage of the resources available from the government. The CARES Act provides direct financial relief for American workers and businesses. And state unemployment payments have been substantially increased by the federal government.

Next, if you are having problems paying your bills, speak with your creditors. Many will work with you, often accepting less than full payment or giving you additional time to pay. Of course, when the accommodation ends you will still owe the full amount and should promptly begin making payments again. As long as you are complying with any arrangement you have worked out with your creditor, your score should not be adversely affected.

But no matter what steps people try to take, many will find they miss payments, spend beyond their credit limit, open a new account or take other steps that adversely affect a credit score. I don’t know if the rating companies will adjust their algorithm, but I predict that creditors will reconsider how they interpret the number. If your credit was good before this crisis but slips during it, I expect creditors will recognize the reason for the drop and treat you in much the same manner as before.

People are spending more money online than usual because they’re bored at home and don’t have a lot to do. One way to curb this overspending is to make a budget and set clear saving and spending goals. You could give yourself a set amount of “fun” money to spend each month. Then, put the rest toward a savings goal.

For example, let’s say you want to have a three-month rainy day fund saved up by August. You could calculate how much you’d need to save each month to reach your goal. Then, put that money in a high-yield savings account, so you can earn some interest while you save. Or, if you already have a rainy day fund, you could consider putting the extra money in a high-yield CD where you can lock in a competitive interest rate before banks potentially lower APYs again. Setting savings goals like these will help curb your spending and keep you on track financially — even in the midst of a global pandemic.