One of the appeals of credit cards is that they allow you to pay off purchases over time. But if your financial situation is tight, adding high-interest debt to the mix could ultimately do more harm than good.
While every situation is different, there may be some steps you can take to reduce or even eliminate your reliance on credit cards to cover necessary expenses. Here are some potential options to consider.
1. Create a Budget
If you're not already on one, take steps to make a budget for your household. Start by listing your income and expenses over the last few months to get an idea of how much you take home and where your money is going.
Then, set some realistic goals about how much to spend in different categories. While some, such as rent, insurance and debt payments, may be fixed, you might have some wiggle room with your discretionary spending on things like groceries, eating out, entertainment and more. If possible, you may also be able to budget a little money for savings or extra debt payments.
Once you've set your goals, track your spending to ensure that it aligns with the parameters you've set.
2. Slash Expenses
As you review your expenses over the last few months, look for areas where you can immediately cut back. For instance, if you spent $150 on eating out last month, see if you can cut it back to $50 and eat at home more often.
Another possibility is to cancel streaming subscriptions that you don't use very often. You may even ask a family member or friend to share a subscription with you to cut the cost in half.
If you spend a lot on groceries, consider whether some of the food you buy goes to waste. If it does, you may consider creating a meal plan and buying only what you need for the upcoming week.
If you get to the point where you're no longer short on cash, continue to keep your expenses low, so you can build an emergency fund to help you avoid another cash crunch in the future.
3. Do a No-Spend Challenge
A no-spend challenge involves a commitment to spend no money outside of your essential expenses—that includes things like rent, groceries, gas, utilities, insurance and debt payments.
Depending on your situation, you can customize your no-spend challenge to fit your needs. For example, you may start with a week, then try a month or longer.
No-spend challenges can not only reduce the pressure on your budget but can also help you determine whether your discretionary spending is serving you and whether or not to adjust how you spend your money once the challenge ends.
4. Look for Ways to Reduce Your Bills
If you have fixed bills that you can't cut, such as internet, phone and insurance, look for opportunities to reduce how much you pay every month. Some potential options include:
- Use Experian BillFixer™: BillFixer, which is available with an Experian CreditWorks℠ Premium membership, negotiates your bills by looking for promotional rates, customer loyalty discounts, special packages and additional credits. You can have BillFixer negotiate using your name or as an authorized user, and you can even join in on the calls to monitor the process.
- Negotiate on your own: If you don't want to pay the $24.99 monthly fee for a CreditWorks Premium membership, you can contact your bill providers and negotiate your bills on your own. Check to see if they're offering promotions, discounts, packages or other ways you can reduce your bill. If possible, you can also shop around and compare other providers to see if you can find better rates elsewhere.
- Refinance your debt: If you have good credit, you may be able to get a lower interest rate or monthly payment on some of your debts. You may also consider consolidating high-interest debt with a personal loan or balance transfer credit card to save money. Just be sure to watch out for upfront costs and use online calculators to get an idea of how much you'll actually save to determine if it's worth it.
5. Earn Extra Cash
Depending on your circumstances and time, there may be opportunities to earn some extra money that you can use to cover your basic expenses. Potential ways to accomplish your goal may include:
- Asking for overtime hours
- Getting a second job
- Asking for a raise
- Looking for a better-paying job
- Driving for a rideshare or food delivery service
- Starting another type of side hustle
- Selling off items you no longer need or use
Research these and other opportunities and find the ones that work best for your situation and your objectives.
6. Ask Family and Friends for Help
If your financial hardship is temporary, consider reaching out to family members and friends for short-term assistance. You may even agree to pay back any money you receive once you're back on your feet financially.
If you do agree to a loan, make sure you lay out the terms and pay it back as quickly as possible to avoid damaging your relationships.
7. Look into Government and Nonprofit Programs
There are many different programs offered by government agencies and nonprofit organizations that can help you cover some of your most basic needs, including rent, utilities, groceries, medical bills and more.
Call 211 and connect with someone at United Way to get an idea of what opportunities for assistance are available in your community.
Take Steps to Safeguard Your Credit During Difficult Financial Times
As you take steps to weather financial storms, it's crucial that you avoid missing payments on your debt. If a payment is late by 30 days or more, the lender may report it to the credit bureaus, and it can damage your credit score. This may make it difficult to get low-cost financing in the future. And the longer a payment remains past due, the more damage it will do.
As you use the steps outlined above, try to prioritize debt payments along with other necessities to protect yourself from potential damage to your credit. If you're unsure whether you'll be able to make an upcoming payment, contact your lender and ask about forbearance options.
Throughout the process, monitor your credit regularly to spot and address potential issues as they arise.