Using credit cards as an unemployed requires you to exercise some control. This is because, unlike on employment days, you may struggle to pay the bill in a timely manner. Non-repayment means extra penalty and interest costs. It affects your budget and basic financial liabilities.
A credit card is a high-interest debt. The impact lasts long if you default. Thus, unemployed individuals must enforce the sagacious use of credit cards. Prioritise expenses that are credit-friendly. Use it only for essential bills like rent, utility bills, and important repairs. It will help you ensure disciplined credit card usage. The blog discusses the best ways to use a credit card if unemployed. It will prevent you from attracting unnecessary liabilities and settle bills timely.
How does a credit card work?
You use a credit card to meet basic expenses like purchasing a big ticket item, paying utility bills, and groceries. It lets you buy things and settle bills up to a limit. Your credit score decides the limit that you get on credit cards. It also depends on how much you earn monthly and the monthly savings. Each month, you get a statement that reveals the following:
- The total amount you owe- the balance
- The minimum amount you must pay
- Date by which you must pay the credit card bill
A credit card is a revolving credit facility. You get the new limit automatically after paying the bill timely. If you pay the full amount, you don’t pay interest. However, using credit cards for cash withdrawals attracts interest. It could prove the costliest way to meet your needs with cash. Avoid this instance as an unemployed. You can instead check cheap and easy-to-maintain small personal loans for quick fixes and emergencies.
Alternatively, paying less than the full amount would be liable for the interest costs. This will be added to your next monthly statement. Credit cards host expensive interest rates ranging from 25-60%. Thus, it should be regulated well to keep costs low.
How do late payments on a credit card damage your credit score?
If you pay less than the due amount or do not pay at all, your credit score may drop. It is one of those debts that may affect the approval of other financial products. For example- you may struggle to get a mortgage or a car loan with pending credit card bills. Alternatively, you may not get cheap deals or low-interest loans even if you qualify. Moreover, skipping credit card payments requires you to pay penalties, extra interest costs, and missed payment costs.
Thus, it increases the total amount you ought to pay on the credit card bill. Unemployed individuals may struggle to repay the dues and do lasting damage to their credit profile. It would be best to discuss the payments with the credit card provider before the due date. It is especially true when you know that you cannot pay the complete bill. He may either help you halt the payments or pay the minimum that you can afford. It is better than paying nothing on the bill.
Alternatively, you can consider a loan for the person on benefits income. Individuals receiving basic pay from the government may benefit from this. You can use the slip to get some funds to pay off the dues without further delay. It helps you meet basic expenses despite unemployment. Later, you may repay the dues in small instalments that you can afford comfortably. If you have any other part-time income as an earning source, provide it if asked. It may help you get a higher sum respectively.
5 Strategies to use a credit card wisely as an unemployed
If unemployed, understand the purpose behind using the credit card. Can you pay the bill that marks your notification afterward? If not, then identify how much you can afford to pay later. Mark this as a limit for your expenses using credit cards. You must not exceed this if you want to keep using the credit card in the unemployment phase. Otherwise, it may affect your financial well-being and credit rating. Here are some strategies that may help ensure wise credit card usage as an unemployed:
1) Consider a card with a low credit limit
It is one of the best ways to keep your credit card-related expenses low. It will help you use the credit card for only essential expenses and avoid unnecessary spending. Therefore, you can manage the credit card better without accumulating high debt that may put you in a tight spot later.
Calculate the credit limit that you need by analysing your monthly important bills and basic earnings. Never use a credit card for things that you may struggle to pay later. Always factor in the interest costs and penalties that you may face on defaulting.
2) Pay the balance in full every month
Try to define the best ways to settle the credit card bill in a timely the next month. You can schedule the payments by setting direct debits. It prevents you from missing the date due to negligence and attracts penalties. Alternatively, you may budget for the bill and pay online on the due date. Set reminders on your phone and keep notifications on. Check if you need to earn an extra part-time income to manage the expenses comfortably.
3) Monitor your credit card usage
Analyse how much you use a credit card and for what purposes. Check whether you can meet those purposes affordably by checking other financial modes. For example- meeting emergencies with personal loans is cheaper than using a credit card. Moreover, it grants you more flexibility on the payment terms.
Eliminate the use of credit cards for purposes that do not meet the critical survival requirement. For example, cut unnecessary subscriptions that affect the basic budget. Check whether there is an auto debit on your old cable or electricity bill. Highlight these and request removal to use the available limit wisely.
4) Redeem the credit rewards timely
What could be better than saving whopping on groceries and utility bills? You can benefit from the credit rewards that you rationalise on the credit cards. Depending on your credit card provider, you may get reward points, discounts, and other incredible offers. Check the timeline by when you must use these. The best part is that you can avail yourself of these benefits in multiple categories.
For example- you can use a credit card to book cheaper flight tickets and get discounts on telephone bills or electricity. Identify the benefits according to your personal requirements and bills that you struggle with the most.
5) Avoid applying for multiple cards
It is the basic aspect that you must follow while using a credit card as an unemployed. Identify the purpose before getting a credit card. Check whether you can meet that affordably using that credit card. Next, use it for a long time and avoid getting attracted to other card offers. It is not advisable to apply for multiple credit cards as an unemployed. It consumes all your available credit limit. You may struggle to ensure a credit utilisation ratio of up to 30%. Thus, use only credit cards that fit your budget and basic requirements and offer good rewards.
Bottom line
Unemployment requires one to monitor the finances and make basic changes. It is about controlling expenses by focusing only on essentials. You may find it easy to pay off the bills using a credit card. However, it sometimes may turn out costly. Identify which bills you can afford to pay using a credit card. Use it only for that purpose. Next, choose a credit card with a lower limit than usual. It prevents you from unnecessary expenses.
