As the coronavirus spreads across the globe, sending shock waves through the U.S. economy, you may feel the ripple effects when you use your credit card. In an emergency move on March 15, the Federal Reserve cut its benchmark rate to nearly zero to try to bolster the economy during the coronavirus outbreak.
That means you can borrow money cheaply and that annual percentage rates on your credit cards could drop.
In the meantime, whether you're stocking up on essentials or facing uncertain wages, try not to add to your credit card debt.
Will Credit Card Rates Drop?
The Fed's benchmark federal funds rate affects the rate at which banks lend money to each other, says Logan Allec, certified public accountant and founder of personal finance blog Money Done Right. This rate, in turn, affects the rate at which banks lend money to their customers.
"As a result, you should eventually see lower interest rates for any money you borrow from banks," Allec says.
That includes rates on credit cards.
That's a good thing if you usually carry balances on your cards, says Gerri Detweiler, credit expert and education director for Nav, a business credit and financing resource.
"It can also be an opportunity to try to tackle your debt and pay down balances if you can," she says. "And if you do need to use your credit card as an emergency loan, lower rates can help make that more affordable."
Don't ignore your card statements. Make a practice of checking them, but know that one to two billing cycles may be needed before you see a rate change. The APR on fixed-rate credit cards shouldn't change because they're designed to stay the same over time.
If you have a variable-rate credit card, here is how a rate decrease would affect your purchases and balances:
Purchases. A lower APR sounds great, but it might not make much of a difference on the interest you pay.
Say your credit card APR was 17% last year, and you charged $1,000 to the card but paid off that balance over six months, plus $50 in interest. Now your APR drops to 15.5%, and you charge another $1,000 to the card. If you pay it off again in six months, your interest charges are $45, a savings of only $5.
Balances. You won't see much of a change here, either. Card issuers generally apply new interest rates only to new purchases.
[Read: Best 0% APR Credit Cards.]
What Are Other Ways the Coronavirus May Affect Your Credit Cards?
The coronavirus outbreak could threaten your credit if you don't use your cards wisely. You'll want to avoid making some of these mistakes with your credit cards:
Taking on too much debt. Americans flocked to big-box chains and grocery stores to stock up on household staples and medications for COVID-19 quarantines. "It's likely consumers didn't worry about their balances and added to their credit card debt in order to stock up and protect their families," Allec says.
But beware the risk of running up credit card debt. Your credit score may drop, and you could pay interest charges if you carry a balance.
You can control your credit card balance during the coronavirus threat if you:
-- Stick to shopping lists. Check which supplies you have, and make a list of what you need. Buy only these items, and try to avoid stress purchases.
-- Pay off card balances if possible. If you charge coronavirus supplies on your credit card, aim to pay off your card balance before interest charges apply.
-- Use your credit card rewards. You may be able to redeem points as a statement credit toward emergency purchases or redeem them for gift cards at stores where you can buy supplies.
-- Tap your emergency savings. The spread of COVID-19 is, after all, not just a national emergency but also a global health crisis. If you need to dip into your emergency savings to cover supplies, then take only what you need and plan to replenish the funds.
Missing payments. If you're facing financial hardship, reach out to your card issuer before you miss a payment.
Ask if your issuer can be flexible with monthly payments and APRs. But also double-check that you won't have to make up any waived payments and fees.
These major card issuers offer help to customers affected by the coronavirus threat:
-- All Capital One customers are eligible for assistance, which may include help with minimum payments as well as suspended fees and deferred loan payments. Affected customers should contact the bank directly.
-- Eligible Citi cardholders can request a credit line increase and use forbearance options.
-- Qualified Discover customers can get support with matters such as fees, late payments and timing of payments.
-- Wells Fargo customers can call 800-219-9739 to talk with a trained specialist about their options.
Falling for financial scams. Scammers are taking advantage of the fear and uncertainty surrounding the coronavirus by selling fake products and phishing for personal data. If your financial details fall into the wrong hands, they can be used to access your accounts and make fraudulent charges or cash withdrawals.
Banks typically won't ask for confidential information, such as your name, password or PIN, if a representative contacts you.
If you're unsure whether a caller is actually with your credit card issuer, don't provide personal details. Simply tell the person you'll call back and then hang up.
If you need to reach out to your bank, always use the contact information from the bank's official website. You can also call the phone number listed on your credit card or monthly card statement.
If you want to contact your bank online, do not reply to unsolicited emails or text messages. Instead of clicking links, get your information from the bank's website.
[Read: Best Cash Back Credit Cards.]
How Can You Reduce Your Credit Card Interest?
A balance transfer credit card or personal loan could save you more money than your regular credit card. Here's more about each option.
Balance transfer: A balance transfer credit card could help you stave off interest costs for a while. This type of card gives you a special rate when you transfer debt from another account and sometimes when you make purchases.
"If you are carrying a balance, locking in a low rate or 0% balance transfer (credit card) could make sense," Detweiler says. "It may give you some breathing room while you weather financial uncertainty."
An introductory rate on a balance transfer card may last about 12 to 18 months. Then the rate reverts to the standard APR you agreed to when you opened the card.
If you have a balance on the card once the introductory period is up, you will pay the normal interest rate on it.
These two balance transfer credit cards may help you save on interest:
-- Citi Simplicity Card. If you want a long introductory period, this card offers 21 months with a 0% APR. Cardholders will pay a balance transfer fee of either $5 or 5% of the balance, whichever is greater, and the normal APR ranges from 15.74% to 25.74%. Do the math to see if the fee outweighs your interest savings.
-- Chase Slate credit card. If you transfer a balance within 60 days of opening your card, you won't pay a balance transfer fee. After the 60-day window, you will pay the greater of $5 or 5% of the amount transferred. The card's 0% introductory APR period lasts for 15 months, but make sure that's enough time to pay down your balance.
Personal loan: With a personal loan, you can borrow a lump sum of between $1,000 and $100,000 and pay it back in monthly installments, usually over three to five years. This could be a good option for debt consolidation, and you won't be tempted to make just the minimum payment, as with a credit card.
Just make sure the loan payment fits in your budget before you apply. If a personal loan won't work, credit cards can be a good fallback if you manage them wisely.
As Detweiler points out: "It's those (credit card) low minimum payments that will allow some consumers to get through the downturn without damaging their credit scores due to late payments."
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