How to manage your credit cards during the coronavirus outbreak

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When the outbreak of the novel coronavirus  – the virus that causes COVID-19 – first became a global concern, many Americans’ questions centered around travel insurance and getting money back from canceled or rescheduled trips.

A subsequent key theme was refunds for canceled and postponed events (sports, music festivals and so on).

Most recently, however, the biggest financial worry has shifted to income, emergency savings and being able to keep up with the bills.

Across the country, social distancing programs have shuttered restaurants, bars, gyms, movie theaters and other places where people like to gather. This has a lot of employees wondering how they will be able to afford their next rent, mortgage or credit card payment.

For many Americans, their primary source of income has been called into question for a period of time. They’re scared because they don’t know how long that will last and how they will make ends meet until they can get back to work.

Banks stepping up to offer relief amid coronavirus outbreak

A bit of good news: Some credit card companies are allowing customers to skip their next monthly payment or two without interest accruing.

The key here is without interest accruing – many other issuers are offering temporary relief such as reduced minimum payments and forbearance, but interest is continuing to stack up, which can be expensive.

Bottom line: If you’re having trouble, contact your card issuer and ask for help. And consider doing so via online chat or social media, because many customers are reporting long phone wait times.

See related: Coronavirus: What to do if you can’t pay your business credit card bill

Governments are offering relief, too

On March 27, President Donald Trump signed into law  a $2 trillion coronavirus stimulus package. As part of this package, most Americans will receive direct payments based on income and number of children. Other notable benefits include expanded unemployment benefits, additional health care funding and loans for struggling companies.

The relief is sorely needed as weekly jobless claims hit a record 3.3 million on March 26. Federal and state governments have also taken steps to prevent foreclosures and evictions during the pandemic.

See related: Best cards for food delivery and meal kit subscriptions

How to use your stimulus payment wisely

Soon, most U.S. adults will be receiving $1,200 apiece from the federal government, plus $500 per child. The CARES Act also extended unemployment benefits for an additional 13 weeks and upped payments by $600 per week for many out-of-work individuals.

My normal advice would be to use a good chunk of “found money,” such as a tax refund, to pay down high-interest credit card debt. Right now, however, I think it’s more important than ever to keep some cash on hand. If you currently have little to no savings – especially if you’re also out of work – having some flexibility with your cash flow is likely more important than paying down debt.

We don’t know how long this crisis will last. You need money for near-term essentials such as food, medicine and housing. While you could put some of those expenses on credit cards and get breaks from lenders and landlords on the rest, you still might have to make some difficult decisions and tradeoffs.

Using a credit card in lieu of an emergency fund is expensive long term. And like we saw during the Great Recession, card companies can cut credit lines without warning.

Sign up for a 0% balance transfer card

I’m always a big fan of 0% balance transfer cards because they allow you to avoid interest for up to 21 months. And since many cardholders are paying rates in the 17-25% range, the savings can be substantial (hundreds or even thousands of dollars, depending on how much you owe).

The certainty of locking in a 0% rate for up to 21 months is a significant perk. And many cards that allow you to transfer existing balances at a 0% promotional rate also offer a 0% rate on new purchases for at least 12 months.

One caveat is that you still need to make minimum monthly payments on 0% balance transfer and 0% intro APR cards (normally 1%-2% of the balance). Ideally, you’ll pay the full amount before the clock runs out, of course (and that will require much higher payments at some point). Another way to think about these cards is to tide you over through temporary cash flow problems.

Though they can be great options for debt relief, balance transfer cards are becoming harder to get. Economic uncertainty is causing many lenders to tighten credit standards. Even before COVID-19, we saw an increasing number of cards charging 5% transfer fees (up from 3%-4% previously).

See related: Best credit cards with no balance transfer fee

If cash flow is really tight, consider a personal loan

For some people, even making minimum payments or affording the upfront transfer fee could be tough right now. In that situation, I’d consider a personal loan. This can be a form of debt consolidation and a way to get your hands on much-needed cash ASAP (often within 24 hours).

Your rate won’t be 0%, but it could be as low as the mid-single digits if you have good credit. The typical payback term is two to five years, and monthly payments can be very affordable (look for a lender that doesn’t charge a prepayment penalty, because once you get into a better financial situation, you can hopefully pay it off early).

Personal loans are typically unsecured, like credit cards, so while you’re expected to pay the lender back, you’re not directly putting your home or car on the line as you would with a home equity line of credit or a car title loan.

See related: Fed slashes interest rates to near zero amid coronavirus fears

Conserve cash and take advantage of refunds

Another way to conserve cash is to delay your 2019 income tax payment (if you owe Uncle Sam), now that the federal government has extended the deadline to July 15. On the other hand, if you expect a tax refund, then you should file ASAP (if you haven’t already) to get that money back sooner.

Use other refunds to sock money away, too (such as funds returned to you from canceled trips, gym memberships or event tickets.)

Consider cash back cards

While travel will surely resume at some point – hopefully, sooner rather than later – if you’re struggling now, redeeming rewards for cash back could provide some short-term relief. You should also make sure your current spending habits are aligned with the right cards.

This might be a great time to sign up for a grocery-focused card such as Bank of America® Cash Rewards credit card or Chase Freedom. Those cards, along with many others, incentivize new cardholders with sign-up bonuses.

See related: Best flat rate cash back cards

This outbreak will end – we just don’t know when

The U.S. economy was on very solid footing prior to the coronavirus outbreak, and we should see a rapid recovery after it ends (thanks to pent-up demand and more).