Using credit cards while unemployed is not necessarily a bad idea as long as you have some amount of income through unemployment insurance or other sources. On the other hand, if your benefits have run out and you have no other source of income, using credit cards could result in your eventual financial ruin. It is understood that credit cards and unemployment are a volatile mixture that should be handled with care.
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The biggest difficulty with credit cards and unemployment is the temptation to use credit as a way of maintaining the lifestyle you’re used to during your period of unemployment. When the unemployed get in trouble with their credit card debt this is usually one of the main causes. Like it or not, unemployment is a time when we need to learn to cut back on our lifestyles and live as barebones as possible until we’re working again.
Credit Card Mistakes to Avoid While Unemployed
If you use your credit cards at all during a period of unemployment, there are a couple of rules you should follow. First, do not use your credit for anything that is nonessential. By nonessential we mean things like food, clothing, medicine, car insurance, etc. that are not necessary.
Don’t use your credit card to pay for your cable television and smart phone plan.
Those extra things are not necessary to finding a job or maintaining your life in survival mode. They are the things to be cut when you’re looking to save money.
Second, many experts suggest you do not allow your debt to get any higher than 50% of your available balance. Once you exceed the 50% mark, you are creating for yourself a negative credit image that will show up through your credit score. It could hurt your ability to find a job or obtain future credit.
Third, you should avoid taking cash advances against your credit cards in order to pay other bills. Cash advances typically incur interest rates well over 20% and carry with them the temptation to repeat the practice multiple times to keep up.
Remember that every credit card payment you make will barely touch the principle if all you can afford is a minimum monthly due. Those high interest rates on cash advances will just keep adding to your debt until it is unmanageable.
What You Can Use Your Credit Card For
According to Steve Bucci at Bankrate.com credit cards can be a great tool to help manage cash flow when you’re unemployed. For example, in most cases you cannot use a credit card to make payments on other forms of unsecured debt. You may also frequent retail stores in your neighborhood that only take cash. Bucci suggests using credit cards for your daily expenses when possible to reserve your cash for those times when it’s the only option.
The obvious caveat to this is being able to make your minimum monthly credit card payments on time. If you find that you still don’t have enough cash on hand you may have to begin selling assets like your jewelry, musical instruments, flat screen TV, and so on. Using credit cards to preserve cash doesn’t do you any good if you’re spending still out paces what you have coming in.
Credit Card Companies May Work With You
Unbelievably, credit card companies today are more willing to work with you than they have been in the past. According to an analysis of unemployment and bad credit card debts published by the Wall Street Journal in 2009, the amount of unpaid balances was expected to exceed the rate of unemployment for the first time in the nation’s history. The result has been a more concerted effort by credit card issuers to reduce interest rates and eliminate penalties in order to at least collect something.
If you’re currently facing financial difficulty because you have no job, it certainly cannot hurt to contact your credit card companies and talk things over with them.
If you honestly explain your circumstances, you might be surprised to find they’re willing to work with you. But if so, do not abuse their kindness by turning around and using your credit cards for unnecessary things. Do your best to use your credit responsibly at all times, especially when you’re unemployed.
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