Credit Card Rules to Break in an Emergency

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The entire world is battling a serious health issue that has affected the income of millions across the globe, COVID-19. The zoonotic virus was first identified in the wet markets of Wuhan city located in the Hubei province of China. When an individual faces sudden disturbance in the influx of income some of the basic rules and guidelines of using a credit, the card turns out to be unrealistic. 

The overall motive of owning a credit card is to utilize in times of turmoil, and practicing healthy credit practices in phases of financial stability will eventually mean that you’ll have flexibility when adversity strikes. Credit cards might help you to fund your expenses for a short period but they cannot act as a full-time replacement of income. 

In order to make sure that you can make the most out of your credit card, in this blog we will decode the most common credit card rules that you can break during phases of an emergency such as COVID-19. Furthermore, we will be sharing some important tips and tricks that will help you to utilize your credit card in a more efficient way.  

Rule 1: Never carry-over Balance

Credit card debts are quite expensive, but if repayment of outstanding financial obligations will affect the necessities that cannot be purchased using a credit card, bending the rule of never carrying balance makes sense. 

The rule is usually applicable for financial instruments that have a high rate of interest associated with them. When an individual pays their debts in full without carrying over it to the next month there is no interest rate applicable over the payments.

However, carrying a balance to the next month means an imposition of heavy interest sometimes up to 20%. Carrying balance for longer periods turns out to be quite expensive. In a phase of financial instability, paying off less than the complete balance will help you to stretch the resources. 

Rule 2: Always pay more than the Minimum Amount

Paying the amount more than the minimum due bill helps the cardholder to maintain a better credit score. Although this approach helps users to keep a good standing it does not reduce the outstanding debt. 

The minimum payment that is to be made by the cardholder is actually a small portion of what you owe to the financial institution. Making the minimum payment will definitely not affect your debt, but if you continue to do this for prolonged periods, you’ll remain in debt for longer. 

During emergencies like COVID-19, the priorities and expenditure pattern changes drastically. Now the choice of making the payment more than the minimum due amount is yours. You can either repay the outstanding financial obligations or stretch your resources for a bit longer to help you with managing day to expenses such as utility bills, groceries, etc. 

In times of financial turmoil making the minimum payment of your credit card will help you to ensure that your account is active and there is no imposition of late fees. Once the crisis surpasses you can work hard to repay the due amount on your credit card.  

Rule 3: Redeeming Reward Schemes for Maximum Value

If you are facing financial stress and you need money to make things work, it is not sensible to redeem reward points, as converting them to cash will help you to manage your expenses efficiently. 

In normal times when your financial situation is stable, it makes sense to redeem your reward points. Typically, travel credit cards yield better returns when one uses them to make a travel-related booking instead of converting them directly to cash. However, when you are going through a period of crisis it makes more sense to convert these reward points into cash as they will act as resources that will make ends meet. Even if converting your reward points means getting lesser value, during a crisis it might turn out to be a savior that will make ends meet. 

Rule 4: Credit Cards are not meant for funding Emergencies

Very often it becomes difficult for an individual to save money as an emergency fund, and when a crisis strikes it is too late to begin. In such a situation credit cards are your hope to get through the phase of financial instability. 

The thumb rule of saving says one must have six to eight-month worth of savings as an emergency fund that will help one to manage their day to day expenses. If your income is disrupted and the expenses remain constant this emergency fund will help you to get through. 

The harsh reality is that whether you have liabilities or not, you will end up piling expenses regardless of your savings. In a phase of crisis credit cards will help you to get some additional assistance in making purchases irrespective of the fact that there is an imposition of interest over credit card purchases.  

In a Nutshell

In times of emergency, one should not focus on maintaining their credit score, instead, the priority should be feeding your family and staying safe. 

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