Monday, May 23, 2011
4 Ways to Use a Credit Card When Unemployed
Unemployment is often a major catastrophe to most households, and in addition to the basic living essentials, you have to worry about your credit card spending. Hopefully, the unemployment will be but a passing thing, but in the meantime you are going to have to make some changes until you find a new job. The key here is not to panic – there are steps you can take to keep things on an even keel for the short term. Of course, the first step is to realize you can't charge items to your credit card which aren't essential, this can work as long as you’re able to pay back once your credit card bill is due.. Here are four ways to use credit cards when unemployed:
1. Forewarned is forearmed. If you know it is coming, you can prepare in advance, if possible. Consolidate your credit card bills and take advantage of the 0%balance transfer credit cards available. Make sure to check for the date when the interest date increases and mark it on your calendar. Do the best you can to pay down the principal or to pay it off before the new rate expires. It is a good idea to close the old accounts and destroy the cards to remove temptation, although you may want to keep one open for credit rating purposes.
2. Communicate. Once you become unemployed, contact your credit card company and ask about ways to freeze or reduce your interest rates until you are re-employed. Explain to them the situation, and you may be pleasantly surprised. Credit card companies are more likely to grant a freeze or reduction rather than take a loss on the entire balance.
3. Step away from the cash advances. Emergencies happen, we all know that. But if you possibly can, stay away from cash advances on your credit card and pay with it instead. The reason being not only will you have to pay a higher interest rate for the cash, the lender will ding you again with a 2.5% transaction fee. That's some expensive cash you're accessing, so if there's another way, take it.
4. Don't max out. The closer you get to your maximum limit, the worse your credit score is going to be. You want to keep that score as healthy as possible for as long as possible. If your credit card score is good, consider taking out multiple cards, you may even qualify for low interest rate credit cards. This may help to pay off some of the balance on the big cards – this way you keep the balance on the higher ones under 50%. Only do this once, as your credit score will lower slightly from the inquiries.
It is easy to experience panic when you receive the news you no longer have a job. If you keep your head about you, there are ways to manage your credit cards to ride this hopefully temporary situation until things turn around.