How Can Credit Cards Help You Navigate Recession?

credit card recession

It won’t be an overstatement to say that we are living in a tumultuous time. First, the entire globe went under lockdown owing to the deadly COVID-pandemic. The lockdown and what followed with it threw the world’s economic growth off-track. And when things started to get back to normal, wars and conflicts like Russia-Ukraine disrupted the oil and gas supply, resulting in further financial setbacks.

Now, most of the world’s economies, including the UK, are battling recession. Rising inflation and fewer sales have forced companies to lay off their workforce which has further deepened the financial crisis. With fewer companies hiring new staff, the unemployment rate has also increased. The looming fear of recession has forced people to use up money kept in retirement and other savings accounts.

While the latest report by PwC’s UK Economic Outlook states that the UK is likely to avoid recession in 2023, the growth would be slower than expected.

The global economy is no stranger to downturns and recessions, and these challenging times can often strain personal finances significantly. Managing your credit card becomes even more critical during a recession as you strive to maintain financial stability.

Recession is an inevitable part of any economy. While one can’t avoid it, one can always prepare for it. In recent years, credit cards have become popular financial instruments for managing credit scores and even building one from scratch. Besides this, people now also have various alternatives to standard credit cards in the form of credit builder cards and ‘bad credit’ credit cards. thimbl is one such fintech company offering credit card options to people who, for some reason, can’t get a traditional credit card. If used wisely, these financial tools can help one navigate times like recession and secure savings.

Financial Flexibility and Emergency Funds:


Credit cards can provide a safety net during a recession by offering financial flexibility and acting as emergency funds. Credit cards allow individuals to cover immediate expenses when cash flow is tight. They provide an accessible line of credit that one can use for essential purchases, emergency repairs, or unexpected medical bills. By relying on credit cards strategically, people can ensure their basic needs are met during challenging economic times, helping them weather the storm more effectively.

Rewards and Cashback Opportunities:


Credit cards with rewards programs and cashback features can prove especially beneficial during a recession. While it is essential to manage credit responsibly, leveraging credit card rewards can help individuals stretch their budgets. Certain credit cards offer cashback on essential purchases such as groceries, fuel, or utility bills. These rewards can offset expenses and provide some relief during financially stressful times. By optimizing the use of credit cards with rewards programs, individuals can make their money work harder for them, thus easing the financial strain of a UK recession.

Consumer Protection and Dispute Resolution:


Credit cards have built-in consumer protection features that can be vital during a recession. Credit cards offer protection against fraudulent transactions, faulty products, or services not delivered as promised. These features can provide consumers peace of mind during economic uncertainty. Credit cardholders can utilize the chargeback mechanism to dispute charges and seek resolution in case of disputes or issues with merchants. This layer of protection can help individuals avoid financial losses and ensure that they receive the goods and services they paid for, providing a sense of security during a recession.

Building and Maintaining Credit History:


A recession can impact individuals’ credit profiles, making it harder to access loans or financial products in the future. However, credit builder cards can be crucial in building and maintaining a positive credit history. Paul Wilson, managing director at thimbl, a leading provider of credit-builder credit cards, further elaborates, “Responsible credit card usage can contribute to a healthy credit score, such as making timely payments and keeping credit utilization low. By continuing to use credit builder cards responsibly during a recession, one can demonstrate their creditworthiness and preserve their access to credit options in the long run.”

During a UK recession, credit cards can be powerful tools to help individuals navigate financial challenges. They offer financial flexibility, emergency funds, rewards opportunities, consumer protection, and the ability to build and maintain credit history. By utilizing credit cards responsibly and strategically, individuals can better manage their finances, alleviate immediate burdens, and maintain a stable financial footing despite the economic downturn. It is essential to approach credit card usage mindfully, keeping long-term financial goals in mind while leveraging the benefits credit cards can provide during a recession.

Here are some tips on using your credit card smartly and ensuring no or minimum financial hassle during times like recession.

Monitor and Manage Your Credit Card Debt:


Keep a close eye on your credit card balances and make timely payments. Aim to pay off your balance in full each month to avoid accumulating high-interest debt. If you’re unable to pay the full amount, make more than the minimum payment to reduce interest charges. Regularly review your statements for any unauthorized charges or errors. Additionally, consider contacting your card issuer to negotiate lower interest rates or explore repayment options if you’re facing financial hardship.

Utilize Low-Interest or 0% APR Offers:

Take advantage of low-interest or 0% APR introductory offers on credit cards. If you anticipate financial difficulties, transferring high-interest debt to a card with a lower interest rate can provide temporary relief. However, reading and understanding the terms and conditions is crucial, including any balance transfer fees or potential rate increases after the promotional period. Be diligent in making payments on time to benefit from these offers fully.


Build an Emergency Fund:

During a recession, it’s crucial to have an emergency fund to handle unexpected expenses or job loss. Allocate a portion of your credit card limit towards building an emergency fund. Use the card sparingly and make regular payments to establish a safety net for unforeseen circumstances. By doing so, you can avoid relying solely on credit cards during emergencies and maintain financial stability.

Prioritize Essential Expenses:


During a recession, it’s essential to prioritize your spending and focus on essential expenses. Use your credit card for necessary purchases such as groceries, utilities, and healthcare. By doing so, you can conserve cash and preserve your emergency fund. Avoid unnecessary spending or luxury purchases that can contribute to mounting credit card debt. Create a budget and stick to it, ensuring your credit card usage aligns with your financial priorities.