Can Your Credit Card Rewards Make You Recession-Proof?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.Read full bio
At a Glance
Some experts warn that a recession could be coming in 2023. But what if something you already had could help you save money without having to dramatically change your spending habits and lifestyle? So, what is it? Your credit cards! The great financial journalist Farnoosh Tarobi turned us onto the idea of using credit card rewards to hack the recession. So how can you use credit cards to recession-proof your income, so you don’t get hurt financially? Here are a few tips.
What to expect:
Choose the right cards for recession planning
When deciding which credit card to add to your wallet, you should consider your lifestyle and where you spend most of your spending. If you are an avid traveler, you might want to get a travel rewards card. If you enjoy eating out, getting a card with the most rewards per dollar spent on dining would be the smartest move.
There are hundreds, if not thousands, of credit cards on the market, so it is important to decide which ones will be the most beneficial. You will likely need a few cards that provide something others do not to be the most effective. For example, the AmEx Gold card gives you 4x points for every dollar spent on restaurants and grocery stores but would only give you 1 point per dollar at the gas station. You could get the Citi Premier card to compensate, giving you 3x points per dollar at the pump.
To help you decide which cards make the most sense, look at your spending over the past 90 days to see where you spend most of your money. There is a card for every category, so do your research before applying.
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Be smart with your spending
Once you have your cards, you should be smart about which ones you pull out at the cash register. Learn the rewards categories like the back of your hand, so you always use the card that gives you the most points on each transaction. You should also consider the sign-up bonuses for the cards that you choose to ensure you meet them and can get bonus points or cash back. Apart from the ATM, never use your debit card for a transaction, as this leaves many points on the table.
You should always have a budget, especially during a recession. Avoid overspending on things that you do not need. There are various tips and tricks that can help you stick to a budget, like cash stuffing, never buying something expensive the day you find it, or simply avoiding shopping without a list of things you need. Regardless of your choice, you should always stick to your budget and leave enough money for an emergency fund if the recession causes a layoff or salary decrease.
Is the average length of a recession since World War II.
Use points and miles to your advantage
Once you have accumulated points and miles, you get to use them. You can use your points from many cards to pay for transactions at places like Amazon, redeem gift cards, or pay down your balance. Although this is certainly helpful, this will likely devalue your points. If you like to travel, transferring your points to partner airlines or hotels can give you a much greater value for each point and help offset your most significant travel expenses.
Taking advantage of your financial resources is one of the best ways to recession-proof your income, as you spend less but get to keep up the same quality of life. Many credit cards come with shopping portals that provide special cardholder discounts or offer statement credits on travel purchased through the portal. Knowing your options ensures you never leave a penny on the table.
Practice healthy financial habits
You should only put things on your credit card that you can reasonably afford. Although your credit limit might be high, that does not mean you should max out your card every month on things you do not need. Try your hardest to pay off your balance in full every month to avoid paying interest, which can quickly accumulate, especially as the prime rate continues to increase as the Feds are fighting inflation. Not only can carrying a balance cost you more than your rewards are worth, but it can potentially lower your credit score and make it more challenging to get a loan or increase possible interest rates in the future.
You also need to make sure you pay your bill on time. Although this seems obvious, many people forget to pay their bills and get stuck with penalty fees and increased rates. Practicing healthy financial habits can allow you to breeze through a recession.
Recessions are a common part of the economy. However, you can take plenty of steps to protect your income when one occurs.
Following these tips allows you to protect your income if a recession occurs. Although nothing is entirely sure, many experts warn of a potential recession in 2023, so it is always good to practice healthy spending habits. Credit cards open a world of possibilities and can save you much money when used wisely.