Credit card rewards may not be your first idea, but they can provide valuable savings when money is tight.
Between growing economic uncertainty and price inflation, you may already be prioritizing things like building, diversification of revenue, and more. This is why you get the right credit card for the reward that suits your budget, and it's also a great way to prepare:
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While we cannot accurately predict how credit card companies respond to the recession, we can look for expectations from the past.
Like consumers, banks and credit lenders have become more cautious during economic downturns. This can have a significant impact on your use and access to credit.
First, getting a credit card may become more difficult as banks tighten their lending standards. Data show that banks tighten the standard percentage of credit cards during economic uncertainty, including the Great Depression, and recently during the post-pandemic downturn.
These stricter loan standards may mean increasing the requirements required by those who obtain a new card or reducing the approval.
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Meanwhile, the recession has also made it harder for existing cardholders to pay their credit card balances. More and more people may make ends meet by turning to credit cards through periods of financial hardship or loss of income, even if they cannot repay the balances generated.
Americans have carried more than ever before. Credit card debt balances exceeded the national $1 trillion trademark in 2023, and they have only developed since then.
In the context of a recession, the combination of high balances and uncertainty could put more Americans at risk of violations. Illegal Violations - As of the last quarter of 2024, the results of your card account's recent or missed payments have been rising and serious crimes (over 90 days). According to the end of the recession, crime is often during and at the peak of the recession.
If you can avoid violations and debt balances, credit card rewards can help you save money and get more for every dollar you spend. Here are a few ways you can ensure that you can get the best value today and in the future:
Redeem the credit card rewards you earn instead of having them sit in your account. Like cash, they may be worth more today than they will in the future.
Inflation can reduce the value of your rewards converted to cashback, while points and miles are overhauled by dynamic pricing models and plans to devalue your redemption.
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There are rewards programs that help you. Maybe you know you want to next year, so you can save all the returns you get this year in exchange for this trip.
Or, maybe you are cutting a lot of your travel plans, but you still want to visit your family during the holidays - you can save on rewards for regular spending throughout the year and cash out the trip.
Another strategy is to redeem your rewards regularly throughout the year. This may be an excellent strategy for cash rewards in particular – some issuers can even set up automatic redemptions at a certain minimum or within a given time frame.
Review the cards in your wallet now to ensure you get the best rewards and benefits on the most common expenses.
For example, maybe you opened a travel credit card for their airport lounge access and allowance, but you are no longer traveling. In this case, it's worth switching that card for more savings for your purchase at home: groceries, gasoline and other cards.
The annual fee for your credit card is another thing to consider. If you pay a lot of money every year to get rewards and benefits that you don’t use, you may lose more value than you gain. This doesn't mean you should only, but it's useful to do the math and make sure the benefits of the card still outweigh its costs.
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The value of the reward may also fluctuate depending on how you use it.
If there is an A, the reward value is very standard. Whether you receive a reward as a statement credit, direct deposit or mail a check, you will receive the same return on your spending.
However, if your card earns points or miles rewards, the redemption option changes. With many cards, you will get the best value whether you are traveling through the credit card issuer’s travel portal or transferring to a travel partner.
For example, when you redeem 25% of the value of points redeemed through ChaseTravel℠, make each point worth about 1.25 cents. This is a more valuable redemption than some other redeemed redemption worth 1 cent or even 0.8 cents per point (such as a statement credit or gift card).
Other reward programs may add redemption value to specific types of travel only. For example, if you have AMEextravel.com booking a ticket, you will receive the best value of membership reward points. Other travel redemptions, including prepaid hotels and car rentals through the portal, cannot obtain high redemption rates.
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When you choose the most valuable redemption option, you can keep the best value rewards.
If you have high interest debt, the best way to increase the value of rewards during a recession is to pay those balances back as soon as possible. The cost of existing credit card debt always exceeds any amount you save through your credit card rewards.
From past downturns, we know that balance transfers and 0% APR come up (some used to pay off credit card debt) tend to tend to be. Today, you can find balance transfer offers for 15-18 months or even longer. Some of these cards can even provide incentives for daily living expenses that your budget is already in your budget, so you can use them to save money after you repay the balance in full.
Take this as an example. With this card without annual fees, you can get a stable introductory 0% APR proposal when the balance is transferred to repay your existing balance. The card then earns 1.5% cashback on each purchase - a great way to save money regardless of what you may need to cut from your budget during a recession.
It’s also smart to pay off debts now, because if your wallet is affected in the future, your financial situation will be better. Instead of investing money monthly to increase your debt balance, you can focus on building your own debt. Additionally, a lower balance can improve your credit score by reducing your credit usage.
This article is from Rebecca McCracken
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