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- Personal finance experts typically warn people to use their credit cards sparingly, or like a debit card — only charge the money you can pay at the end of the month.
- Suze Orman was one of those experts — but during the coronavirus, her advice is the opposite: Use your credit card to free up cash, especially if you’re out of work or expect to be out of work soon.
- Orman told Business Insider you can use cash to pay off any credit card debt you build during the pandemic once you have a steady income again.
- Orman suspects credit card companies will lower users’ credit limits like they did in the financial crisis of 2008; if your credit limit decreases and you’re out of cash, you could find yourself in a sticky situation.
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You may have heard personal finance experts say you should use your credit card like a debit card — only make charges using money you have — or even that you should stay away from credit cards at all costs.
But Suze Orman, author of “The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime,” and host of podcast Women & Money, told Business Insider the coronavirus pandemic is the time to use your credit card, if you have one.
It’s rare that you’ll hear a financial expert tell you to put money on a credit card unless you’re paying off your statement balance in full every month. Credit cards come with high interest rates, which makes for extremely expensive debt — so paying off your balance can become a burden. But extreme times may call for extreme measures.
Orman had already advised people to use their credit cards on the Today Show back in April. A few months later, her opinion hasn’t changed.
Orman recommends swiping your credit card so you can save cash
Goldman Sachs predicts unemployment rates will stay high in 2021. Right now, it doesn’t look like Congress will extend the weekly $600 federal unemployment program, so plenty of Americans are in scary financial situations.
“You need to be keeping every penny that you have,” Orman said. “And what that means is, if you have available credit limit on your credit cards, I personally would be charging everything I could on my credit cards, keeping the cash that I have absolutely safe and sound, and paying the minimum payment due on my credit cards when the bills come in.”
Making the minimum payment each month will minimize any damage to your credit score. Your payment history makes up the largest percentage of your credit score. Your credit utilization ratio — how much of your available credit you’re using — is a close second, though, so beware that putting more on your card will likely cause your score to decrease at least a little bit.
Right now, Orman thinks you should focus on keeping cash on hand for expenses you can’t put on a credit card. Once you have a job and are bringing in income, you can look into paying off any credit card debt you’ve built during the pandemic, Orman said.
Credit card companies might lower credit limits like they did in 2008
Orman remembers when credit card issuers lowered customers’ credit limits during the 2008 financial crisis. Many of the people she worked with at CNBC, where she hosted The Suze Orman Show at the time, faced this problem. Their credit card companies slashed their credit limits to their amount of credit used.
“Meaning if they had a $5,000 credit limit and they had charged up $3,000, their new limit was $3,000,” Orman said. “So they couldn’t charge anymore on their credit card.”
Some credit card companies have allowed Americans to pause their payments for a few months during the pandemic. But the assistance period is coming to an end for many people.
Orman worries if millions of people can’t pay what they owe credit card issuers after the deferral period ends, then companies will decrease credit limits again.
She thinks it’s worth paying interest on your credit card balance to keep cash close in case companies lower credit limits again. Rather than use cash now and assume you can lean on your credit card later, you can use your credit card now and depend on cash later if your limit goes down.
You may not need to rely on a credit card if you already have emergency savings
If you’ve already built a reliable emergency fund, you may be the exception to Orman’s advice about credit cards. You may have the means to rely on cash for months.
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Orman says people should have at least eight months of expenses in emergency savings to hold them over if they lose their jobs and are looking for work — more than the typical advice of three to six months’ worth. “The truth is it will take you at least eight months to one year, if you’re lucky right now, to get another job,” Orman said.