The COVID-19 pandemic has impacted the way we manage our finances, due to which many people have had to change their money habits. With businesses shutting down and salaried individuals enduring reductions in their income, making on-time credit card payment has become a challenging task for many. It has been observed that banks and credit card issuing companies have reduced credit card limits during this pandemic.
Although the vaccine rollout is allowing people to resume work, we are not getting back to our pre-pandemic routines any sooner. In fact, with the COVID-19 variants showing up, we have to endure another lockdown.
Here are some of the credit card habits to carry on during this pandemic:
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Maintain a dedicated emergency fund
It is an imperative step to safeguard yourself against unexpected events. Although it may not seem like a bank credit card habit, people who have had to endure a cut in their credit limits could not cover an emergency that came up during the lockdown. So, your credit card may not be the best substitute for savings.
It is crucial to have an emergency fund with sufficient money to cover unexpected expenses or your regular expenses for the next six months. Even a small amount of savings could make a difference during such times. If you are building an emergency fund for the first, you may want to cut down your expenses for a few months and make gradual contributions towards your ultimate goal.
It is worth noting that your emergency funds need to be safe and easily accessible in times of need. You can keep your money in a savings account. You may not get the best returns in Interest, but your money is safe there, and you can withdraw it whenever you want to meet your financial requirements.
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Ensure that your bank credit cards are active
Your credit limit is the total amount of money in your credit card that you are allowed to use. If your credit card issuer reduces your credit limit, your credit utilization ratio will increase and may result in lowering your credit score.
For instance, If you have a credit card limit of Rs. 50,000/- and a balance of Rs. 15000/-, your credit utilization is 30%, and If your credit limit is cut in half to Rs. Rs. 25000/-, your credit utilization jumps to 60%. A lower credit utilization translates to better credit utilization.
Your credit utilization is calculated on a per-card basis and across all accounts. Having an inactive credit card will harm your credit utilization ratio. All the credit in that account disappears, due to which the existing balance will form a higher percentage of your credit limit. So, you will have to ensure that your credit accounts are open and active. Use your card once a month and make your credit card payment on time.
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Keep a low credit utilization ratio
A golden piece of advice would be to keep your credit utilization as low as possible to avoid affecting your credit score. It also enables you to withstand any future financial crises. To lower your credit utilization during the pandemic, you can make more than one credit card payment per month. Keeping a low balance on your bank credit cards is good for your credit score. Besides that, carrying a balance on your credit card from month to month means that you are paying less interest.
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Keep a balance between debt payoff and saving
It has been observed that a large number of borrowers who experienced a reduction in their credit limits during the pandemic paid their balances before the due dates. So, when you speed up your debt patent, you can make significant savings in interest. It is worth noting that you do not have to utilize all your savings to pay off high-interest debts. It is imperative to keep some cash in hand before paying off your balances. Your emergency fund is to help you tide over financial crises. So, make sure there is a balance between debt payoff and savings.
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Know the relief options offered by your bank and their disadvantages
Due to the reduction in almost everyone’s income during the pandemic, banks and credit card issuers offer temporary help. For instance, as a credit card user, you can opt for reduced payments, waived late payment fees, or reduced or waived interest payments. But, it is noteworthy that you have to endure reduced credit limits.
A reduced credit limit should not discourage you from asking for help when you need it. Opt for relief assistance offered by your credit card issuers to evaluate your options in comparison. If you do not have any other option, you can contact your card issuer and request assistance. Also, if you have enough savings or have friends to help you, it is better to avoid the pitfalls that come with relief assistance programs.
In short
The unprecedented COVID-19 has made it difficult for everyone to make on-time credit card payments and avoid lowering credit limits. Follow the above-suggested habits to carry forward this pandemic.
