Maintaining stability can be challenging during economic uncertainty, whether due to recessions, inflation, or financial downturns. Credit cards may appear to offer an immediate solution, but excessive reliance on them can lead to long-term financial strain. Thoughtful and strategic credit card use is essential to safeguarding financial health during unpredictable periods.

Six Credit Card Mistakes to Avoid During Financial Hardships

1. Neglecting Your Savings

A lack of sufficient savings can leave you financially vulnerable. To avoid excessive debt and maintain financial security, your savings should grow in tandem with or outpace inflation. Otherwise, frequent reliance on credit cards may become inevitable.

Credit cards may offer a sense of financial security, but carrying a balance can quickly strain your budget and lead to mounting debt.

Consider savings accounts, money market accounts, certificates of deposit, or share certificates that align with your financial needs. Even small contributions to your savings can provide significant long-term benefits.

2. Maintaining the Same Spending Habits

Financial shifts demand budget adjustments. Rising costs for essentials like gas, internet, and utilities may require cutting back on discretionary spending. If you follow the 60-20-20 budget rule (60% for necessities, 20% for savings, and 20% for entertainment), consider shifting to a 70-20-10 model to accommodate rising expenses.

Analyze your expenses and identify areas where you can cut back, such as reducing subscriptions, opting for budget-friendly entertainment, or finding cost-effective alternatives for groceries and phone plans. Consider additional income streams like side gigs or shared living expenses if financial strain persists. Adjusting your budget strategically can ease the pressure on credit usage and improve financial resilience.

3. Over-Relying on Your Credit Limit

Depending on your credit limit as a financial cushion can be risky. During economic downturns, credit card issuers may reduce credit limits or change terms without notice. What once seemed like a financial safety net may suddenly become less reliable.

While you can request a credit limit increase if your account is in good standing, be mindful that it may result in a hard inquiry on your credit report, which could temporarily impact your credit score. Additionally, accumulating high-interest debt can lead to financial strain and costly interest payments. Credit cards should serve as a backup, not a primary financial strategy.

4. Missing Payment Deadlines

Late credit card payments can lead to substantial fees and interest accumulation. Missing a payment can cost up to $30 for the first offense and up to $41 for subsequent instances. Additionally, issuers compound interest charges daily, increasing the overall debt burden.

Consistently missing payments can damage your credit score, making it harder to secure financial assistance during economic hardships. If you anticipate missing a payment, contact your credit card issuer to discuss possible solutions. Setting up automatic payments can also help ensure you stay on track.

5. Taking Out Costly Cash Advances

While a cash advance may seem like a convenient solution for immediate cash needs, it often comes with high costs. Interest begins accruing immediately—often at rates higher than standard card interest rates—and service fees can be substantial.

Charge expenses directly to your credit card whenever possible. If that’s not an option, consider alternatives such as consolidating credit card debt into a personal loan, which may offer better terms and lower interest rates than a cash advance.

6. Carrying a High-Interest Balance

Carrying a large balance on a high-interest credit card can significantly increase the cost of your purchases over time. Compounding interest means you may end up paying interest on previously accrued interest, resulting in escalating debt.

To avoid this financial strain, aim to pay off your total credit card balance each month. If that’s not feasible, prioritize reducing your balance as quickly as possible to minimize interest payments.

Exploring Alternatives to Credit Card Debt

When financial hardships arise, making ends meet remains a priority. If you’re burdened by high-interest credit card debt, explore alternative solutions—especially if your credit is in good standing.

• Personal Loans: These often carry lower interest rates than credit cards, potentially reducing monthly payments and long-term interest costs.

• Balance Transfer Credit Cards: Moving debt from a high-interest card to a balance transfer card with a lower or 0% introductory APR can help save on interest and accelerate debt repayment. Be sure to choose a card with minimal transfer fees and understand the duration of any promotional rates.

Make Tough Times More Manageable

Partnering with a reliable financial institution can help you navigate economic challenges more confidently. Reach out today to explore alternatives to high-interest credit card debt and take steps toward a healthier financial future.