Credit card rewards may not be your first thought when it comes to financial planning, but they can offer valuable savings when money is tight. Between growing economic uncertainty and inflated prices, you may already be prioritizing things like building an emergency fund, diversifying your income, and cutting unnecessary expenses. However, securing the right credit card with rewards that fit your budget can also be a great way to prepare for financial challenges.
During periods of economic downturn, banks and credit lenders tend to become more cautious, resulting in tighter lending standards. This can make it more difficult to qualify for credit cards, as banks may increase the credit score required for approval or decrease credit limits for those who are approved. Data from the Federal Reserve Bank of St. Louis shows that the percentage of banks tightening standards for credit cards spikes during times of economic uncertainty, such as the Great Recession and more recently, during the COVID-19 pandemic.
Additionally, recessions can make it harder for existing cardholders to pay down their credit card balances. More people may rely on credit cards to make ends meet during financial hardship, leading to higher balances and an increased risk of delinquency. In fact, credit card debt balances in the US crossed the $1 trillion mark in 2023 and have continued to rise since then.
To make the most of credit card rewards during a recession, it’s important to redeem the rewards you earn rather than letting them accumulate. Inflation can decrease the value of cash back rewards, while points and miles can be subject to devaluation through program changes. Having a plan for your rewards, such as saving them for a specific goal or redeeming them at regular intervals, can help maximize their value.
It’s also essential to review the cards in your wallet to ensure you’re getting the best rewards for your common expenses. If your spending habits have changed, consider switching to a card that offers more savings on your current purchases. Additionally, evaluate the annual fees of your cards to make sure the benefits outweigh the costs.
When it comes to redeeming rewards, choosing the most valuable options can help maintain their worth. Travel redemptions often offer the best value for points and miles, with some programs providing bonuses for specific types of travel bookings. By paying down high-interest debt and taking advantage of balance transfer offers, you can save money on interest and improve your financial standing during a recession.
In conclusion, credit card rewards can be a valuable tool for saving money and getting more out of your spending, especially during uncertain economic times. By being strategic with your rewards redemptions and staying on top of your finances, you can make the most of your credit card benefits now and in the future.
