Money Management

Being overly reliant on credit cards could cost you. Read on for ways to depend on your cards less. 

Carrying a balance on a credit card can be an expensive prospect. After all, credit cards are notorious for charging high amounts of interest on balances that aren’t paid in full. And given that interest rates are higher today in the wake of multiple Federal Reserve rate hikes, it’s really not the best time to be carrying a credit card balance forward.

But unfortunately, 2 in 5 Americans with credit cards now say that they’re more dependent on those cards than ever before, according to a recent Quicken survey. This sentiment especially holds true for millennials, 53% of whom say they’re more reliant on credit cards now than before.

If you have a tendency to reach for a credit card to cover unplanned expenses, you may be setting yourself up for a world of financial upheaval. Not only can credit card debt be costly, but it can also cause damage to your credit score — even if you do a good job of making your minimum monthly payments when you’re supposed to. So if you’re too reliant on credit cards, it’s time to break that cycle.

Build emergency savings

A big reason so many people become reliant on credit cards is that they don’t have money in the bank to tap when sudden bills arise. So if you want to become less dependent on your credit cards, you’ll need to build up an emergency fund.

Generally speaking, it’s a good idea to maintain an emergency fund that’s large enough to cover three months of essential bills. That way, if you were to lose your job, you’d have a way to pay your expenses for a while.

Of course, if your current emergency fund balance is $0, you’re not going to go from that to having three months’ worth of living expenses saved in a matter of weeks. It could easily take months or years. But saving some amount of money is an important step in the right direction.

Let’s say you manage to save $500 and then you’re hit with a $250 car repair bill. That’s $250 that won’t automatically have to go on your credit card.

Take a closer look at your spending

Some people end up with credit card debt, or end up heavily reliant on credit cards, because they’re hit with too many unplanned expenses to handle at once, or because they experience an event like job loss that impacts their income. It may be that you have no savings and are reliant on credit cards because you spent the first half of 2023 paying off bills from a medical issue.

That’s why it’s important to take a close look at your spending habits. Even if you’re living modestly, there may be corners you can cut that help you build up a financial cushion.

Are you forking over $60 a month for streaming services and spending $100 a month on takeout meals when you pretty much have $0 in your savings account? These are perfectly reasonable expenses if your cash reserves are in decent shape. But if you’ve become super dependent on credit cards and don’t have money in the bank, then these are expenses to look at cutting temporarily until you’ve built up more of a savings balance.

You may even want to look at bigger changes, like moving to a cheaper apartment for a year, to boost your savings and chip away at credit card debt you already have. Unloading a car you can get by without could be a similarly savvy move that has a big impact.

Of course, giving up things you love, like a larger home, vehicle, or entertainment, isn’t easy. But we’re not talking about doing it forever — just for a bit of time so you can get to a place where you don’t constantly need your credit cards to bail you out.

Given today’s higher living costs and lingering inflation, it’s easy to see why 2 out of 5 Americans depend on their credit cards more so than usual. But if you’re able to break that cycle, your financial picture could improve greatly, and you might enjoy some of the mental health benefits that come with being less financially squeezed all the time.

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We can’t predict when, but we know another recession will happen. These five purchases can make riding a recession out in relative comfort easier. 

While some experts were sure the U.S. would be in a recession by the end of last year, the predicted recession did not appear. Before we get too giddy, though, it’s important to remember that there will be another recession — at some point.

Recessions are an unfortunate part of the economic cycle. Whether a recession arrives this year or several years down the road, it pays to be prepared. These five purchases can make it a little easier to weather the economic storm of the next recession.

1. Personal goods

Remember during the COVID-19 pandemic when people tussled over toilet paper at their local Sam’s Club and Costco?

There was nothing fun about it, and if you’d like to avoid a repeat of the issue, you’ll also want to stock up on all those items none of us will be able to give up, even during a recession. This includes toilet paper, shampoo, deodorant, toothpaste, and other personal care items.

2. Pet food

Unopened dry dog food has a shelf life of 12 to 18 months, and according to PetMD, a can of unopened dog food can last for years. Look for online and in-store sales on pet food and pick up extra when the price is right. Be sure to check the expiration date before making the purchase.

3. Side hustle supplies

Think of a hobby you enjoy, then decide if it’s something you can transform into a side hustle during the next recession. Whether it’s woodworking or crocheting, consider ways to bring in extra income if finances become challenging for your household. A side hustle may not make you rich right away, but it can likely put extra money in your bank account each month.

Returning to the topic of inflation, the supplies you usually use for your hobby will carry a higher price during a recession. Keep your eye out for sales and stock up when a great deal comes along.

4. Generic products

If you’re unfamiliar with generics, you’re in for a treat. Many are made by big-name companies but packaged by the retailer that sells them. Better yet? On average, generic and store-brand groceries will cost you a whopping 40% less than the brand names you’re more familiar with.

Why not pick up a few new generic products each week and test them out at home? That way, you’ll have a short list of the products you enjoyed when a recession does arrive.

5. Stocks

There is no such thing as a “recession-proof” stock. However, some stock market sectors have historically held their own during past recessions. They include:

Healthcare: People can save money by eating out fewer times a month and going to the movies less often, but if they’re sick, they’ll still need medical care. That’s why stocks like CVS Health, UnitedHealth Group, and Pfizer have done well, even as the economy goes south.Consumer staples: Another thing people can’t give up is food. Even if we eat hamburgers instead of steak, we must buy food. Stocks in companies like Tyson Foods and General Mills have proved to be good investments in the past.Utilities: Unless you live off the grid, you’ll still pay for electricity, water, natural gas, and trash collection during the next recession. Why not look into stocks like American Water Works, Waste Management, and NextEra Energy before a recession arrives?

I’m not suggesting that the companies listed here won’t get hammered by the next recession. What I am saying is there is money to be made, even during recessions. Before you do anything, though, do your homework. Read everything you can find about any company you’re interested in, and determine if it’s an investment you want to hold for years to come. Then, speak with your financial advisor about the wisdom of making an investment move.

The tricky thing about a recession is that the “signs” aren’t always as straightforward as we might hope. Perhaps you can set an alarm for yourself. For example, you may decide to pick up extra items when industries across the country are cutting jobs or other key indicators of a pending recession pile up.

As painful as each recession is, they don’t last forever. Since 1900, the average recession has hung on for 15 months, each followed by an extended period of growth and prosperity. The goal is to ride out those months in the most comfortable position possible.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More