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Credit card debt is never a good thing, and if you have hundreds or even thousands to pay off, a recession could make doing so exponentially harder depending on your circumstances.
In October 2019, four Bloomberg economists developed a model that determined there was a 27 percent chance recession would hit the U.S. within the next year. As of this month, that number has climbed to 53 percent due to the increasing effects of the coronavirus on the U.S. economy.
What’s more, a 2019 Bankrate survey found that if a recession were to hit within the next six to 12 months, two in five Americans wouldn’t consider themselves to be ready.
In the midst of recent layoffs, market volatility, emergency rate cuts from the Fed and, as of today, a spike in applications for unemployment benefits, it helps to be prepared. Paying off your credit card debt is one way to make you more financially resilient.
Debt payoff timeline
First and foremost, put together a rough timeline based on how much you can afford to pay off each month. The more you can put towards paying off credit card debt, the better.
Take into account any necessary spending (i.e., house and car payments, grocery staples, childcare) and determine where you can afford to cut back.
Cut out unnecessary spending
“In any economy, consumers should pay off their debt as quickly as possible,” says Kayse Kress, financial planner at Physician Wealth Services. “Take a hard look at your finances and make some adjustments. Analyze your fixed expenses first, and then decide what you can downsize or eliminate.”
The first things to go should be unnecessary subscriptions like streaming services, meal prep boxes or monthly clothing/jewelry deliveries. You can also arrange for cheaper versions of plans or subscriptions you just can’t live without.
“Cancel or renegotiate the cost of your cable or find a cheaper cell phone plan. This type of budgeting can help you apply more of your income to paying off debt rather than paying for fixed living expenses,” Kress says.
Applications that can make it easier
Debt payoff planning can be stressful and even confusing, but there are a few free options that can help make it easier.
Mint can be a great application for tracking and planning your finances; all you need to do is link your credit card account and set a savings goal and date.
The app allows you to set budgets and goals from a built-in list, including “get out of debt,” “retirement,” “buy a home,” “save for college,” “buy a car” and “emergency savings.” You can also request email summaries of your progress.
Tally is a mobile app with the main focus of helping users pay off credit card debt. It doubles as a credit card manager and automated debt tracker.
Each month, Tally will provide you with a detailed payoff plan based on your credit card balances, due dates and interest rates. The month-to-month flexibility helps with any unexpected payments that may come your way.
Balance transfer credit card options
You may be reluctant to consider credit cards as a solution to your problem considering you may have accumulated debt on a credit card in the first place. However, balance transfer credit cards can be an excellent financial tool to pay down credit card debt within a zero interest period. These cards can help you save a significant amount of money on interest and fees and give you head start on tackling your principal debt (or even paying it off completely).
Maximize your interest-free payoff timeline
The Citi Simplicity® Card offers one of the longest interest-free periods available with an introductory 21-month zero percent APR on balance transfers (14.74 percent — 24.74 percent variable APR after). Besides this, the card has a “no late fees ever” policy, meaning you won’t be charged a fee for making a late payment or a penalty rate for doing so. The icing on top is the card’s lack of an annual fee.
One notable drawback of the Citi Simplicity is it’s $5 or 5 percent balance transfer fee (whichever is greater), which is slightly higher compared to the typical $5 or 3 percent balance transfer fee seen within similar cards. You also won’t earn any rewards or welcome bonus, but it’s the price you pay for an exceptionally long welcome offer.
When evaluating balance transfer cards, include the balance transfer fee into your calculations along with the amount you’ll be saving on interest payments throughout the introductory zero percent APR period to determine the best option for you.
Get long-term value from your card
If you’re interested in earning rewards while paying off your debt, the Chase Freedom Unlimited® offers an introductory 15-month zero percent offer on purchases and balance transfers (16.49 percent — 25.24 percent variable APR after) for a $5 or 3 percent balance transfer fee, whichever is greater, on transfers completed in the first 60 days (5 percent on future transfers with a $5 minimum).
The Freedom Unlimited earns you an unlimited 1.5 percent cash back on all purchases, plus a $150 bonus once you spend $500 on purchases in your first three months. On top of all this, you won’t pay an annual fee. Just be careful to only spend what you can afford to comfortably pay off each month or hold off spending completely until you’ve paid off your credit card debt.
For help choosing the right balance transfer card, you can utilize Bankrate’s credit card balance transfer calculator. Simply enter your current credit card balances and interest rates and compare them with any potential new card details and fees.