5 Ways to Be Smart About Credit Cards – During COVID-19 and Beyond

Headshot of Herb White
by Herb White
Chief Lending Officer
Sharonview Federal Credit Union

October, 2020

Making smart personal finance decisions is always a good idea. And it’s true now more than ever as the global COVID-19 pandemic brings uncertainty and economic upheaval.

In one area in particular — credit cards — it seems consumers are doing a good job. At Sharonview Federal Credit Union, credit card balances are down $9.4M, or 9 percent, this year, while deposits are up $77M, which is $50M over budget. This is excellent news and means consumers are better equipped to handle the current economic uncertainty and volatility. Consumers are in a stronger position than they were going into the 2008 recession.

Still, it pays to remain fiscally cautious and vigilant, and I urge consumers to keep these five things in mind when it comes to their credit cards. 

1. Spend with a purpose

Make sure you have a purpose in mind when using you credit card, versus shopping aimlessly or mindlessly. If using a rewards card, use it for everyday items like food, gas and utilities, if you have the budget to do so to pay off the entire balance each month.

Or, if you’re using a low-rate card, use it to invest in yourself in your home.

credit cards on a table

2. Invest in yourself and your home.

If you are out looking for a job, you should absolutely buy a business suit or other appropriate attire for your job interviews. This is a smart and necessary purchase and an investment in yourself and your future.

Now is also a good time to tackle home improvement projects, and there's a reason why Lowe's and Home Depot are doing so well right now. But with home improvement and other large ticket purchases, shop around to see if there are smarter and cheaper financing options, like a home equity loan. If you don't have equity in your home to borrow from, a credit card can be an OK option. Just make and stick to a budget that will allow you to pay off that debt in two to three years. And shop around for the best credit card -- one with the lowest rate or the most lucrative rewards programs.

3. Make and stick to a budget.

It’s really important to make and stick to a budget to pay off larger credit card balances, ideally in two to three years. If you pay just the minimum payment — and make no more purchases on your credit card — it will take you nearly 15 to 20 years to pay down the balance.

Your budget should be easy for you to regularly revisit and revise. Make it work for you, whether it’s in an Excel spreadsheet, Word document or mobile app.

4. Know your limit.

Know your credit limit and stay 50% or under that available credit limit. 40% is ideal. You want to build a good credit history and show that you can handle credit. But if you go over 50% of your available credit, know that you will begin to negatively impact your FICO score.

5. Treat yourself.

You won't hear everyone say this, but it's OK to treat yourself. We are living through a pandemic. We are somewhat isolated. We aren't spending as much money. I'm not saying go to the mall and drop $300 on random stuff. Be intentional. If getting your nails done or hair cut will lift your spirits, do it. 

Remember, spend with purpose. Invest in yourself. Budget. Know your limits. Indulge now and then.

You got this. Keep up the good work.

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