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An economic recession isn't always the best time to get a new credit card, especially if you're struggling financially. But if you can manage to pay off your bill in full every month, getting a rewards credit card could provide some extra value during a challenging time. Some types of credit cards may even offer some relief when you're struggling to make ends meet.
There are several types of credit cards available, but some may be better than others during an economic downturn. Here are some types of cards to consider, along with some examples that can help you make the best decision.
Rewards Credit Cards to Consider During a Recession
Credit cards can carry significant risk, especially if you spend more than you can afford to pay off every month. But in the right situation, using a rewards credit card during a recession can provide some significant benefits. In some cases, it could even be a game-changer.
Cash Back Credit Cards
In general, people tend to travel less during an economic recession, especially if there are other elements—such as a pandemic—that make it challenging to travel safely.
As a result, a cash back credit card may be a good option because it can provide you with flexible rewards that you can use for just about anything.
Some cash back credit cards offer a flat rewards rate on everything you earn, and may even provide a sign-up bonus when you first open the account if you meet certain requirements.
The Chase Freedom Unlimited®, for instance, currently offers a $200 bonus after you spend $500 in the first 3 months with the card, plus N/A back on the first $12,000 spent on grocery store purchases during the first year. You'll also earn 1.5% cash back on every other purchase.
Balance Transfer Credit Cards
If you already have credit card debt and are looking for a way to pay it off more quickly during financial hardship, moving that balance to a balance transfer credit card could provide you with significant savings.
These cards typically offer an introductory 0% APR promotion on balances transferred from another card or cards, and some also offer rewards on everyday purchases. You could pay significantly less in interest by taking advantage of a balance transfer offer.
For example, the Citi® Double Cash Card - 18 month BT offer from our partner comes with an introductory 0% APR on balance transfers for 18 months, giving you plenty of time to pay down some or all of your credit card debt interest-free. Just keep in mind that the APR will increase to 13.99% to 23.99% variable after the promotional period ends.
The rewards on this card are solid: You'll earn 1% cash back on every purchase you make, then another 1% back as you pay them off.
You'll have to pay a 3% balance transfer fee with a $5 minimum on your transferred amount, which will be added to your balance. However, you may be able to get much more than that back in the form of interest savings and cash back.
0% Intro APR Credit Cards
These credit cards function similarly to balance transfer credit cards. But instead of giving you an interest-free period on balance transfers, you'll get it on new purchases.
These cards can be a great way to delay paying for necessary or emergency purchases while you try to get back on your feet financially. And as with balance transfer cards, many 0% intro APR credit cards also offer rewards on your purchases.
One example is the Capital One® Quicksilver® Cash Rewards Credit Card, which gives you a 0% intro APR on purchases for 15 months, after which the variable APR jumps to 15.49% to 25.49% depending on your creditworthiness. You'll also get a one-time bonus of $150 when you spend $500 in the first 3 months with the card, plus 1.5% cash back on every purchase you make.
Everyday Spending Cards
While many rewards cards offer a flat rate on all purchases, some provide bonus cash back, points or miles on certain spending categories. During a recession, consider areas of your budget where you're spending the most, which may include common expenses like groceries and gas. Some cards can offer more value when you make those purchases.
Also, keep in mind that some of these cards can serve several purposes, including providing great rewards and an introductory APR promotion.
With the Discover it® Cash Back card, for example, you'll earn 5% cash back in categories that rotate every quarter when you activate. Those categories can include grocery stores, gas stations, wholesale clubs and major online retailers like Amazon, Walmart and Target.
The only downside is that the 5% category only applies to the first $1,500 spent each quarter. All other purchases, including those above the $1,500 threshold, earn 1% back.
As a new cardholder, you'll also get all of your cash back matched at the end of the first year. Plus, you'll get a 0% intro APR on both purchases and balance transfers for 14 months, then 11.99% to 22.99% variable after that.
Picking the Right Card for You
With so many different types of credit cards out there, it's important to know your situation, goals and preferences before you decide which one to choose.
For starters, consider what you want to do with a credit card. If you're having trouble making ends meet, for instance, a 0% intro APR credit card can give you some time to make interest-free purchases while you get your finances in order. If you have high-interest credit card debt, a balance transfer card may be an ideal choice to help you save money.
If, however, you're not struggling financially right now, it may be best to search for a card that offers the best rewards based on your spending habits.
It's also important to know where your credit stands before you apply for a card. The best rewards credit cards typically require good or excellent credit. Your choices may be limited if you have bad or fair credit, but there are still options.
Experian's credit monitoring tool can help you by providing free access to your FICO® Score☉ and your Experian credit report. With this information, you'll have an idea of what your credit profile looks like and also get some ideas of where you can improve.
You can also use Experian CreditMatch™ to get an idea of which cards you're prequalified for based on your credit profile.
As you take these steps, you'll be in a better position to choose the right credit card for you and your needs.