Under normal financial circumstances, even a faintly responsible person would advise you to get rid of your CREDIT CARD DEBT! However, when the economy has one foot grounded in a recession and the other foot dancing near a banana peel, paying your credit cards off may not be priority #1.
Yep, you read right: You may want to hold on to your credit card debt until we weather this financial storm.
Less money to go around
During a recession, credit card providers are just as nervous as credit users, if not more. An economic downturn usually means there is not a lot of disposable income in the majority of households. In some cases, every dollar that comes into the home makes a quick exit just to keep up with everyday living expenses.
Now say, for instance, you only have enough money to either pay your mortgage or your credit card bills. Which do you think will win? I can’t speak for you, but I have a penchant to keep a roof over my head. As you ponder over your decision, your credit card provider is betting that you would choose the mortgage as well.
Punished for paying down debt
So in an effort to soften the blow of the “inevitable” defaults, credit card providers are lowering credit card limits, and in some cases, closing credit card accounts altogether. If you pay off your credit card debt in the hopes that you will be able to use your credit card in an emergency, there is no guarantee it will be available when that time comes. Countless credit card providers are closing accounts to cut costs and their losses, and they are doing so without any warnings. It’s every creditor for him or herself during a recession.
Consider the nest egg
I’m in no way suggesting that you stop paying down your credit card debt. In fact, pay more than the minimum if you can to save money on interest. This is especially true if your nest egg is sturdy enough to support you during an emergency.
But if your nest egg is too fragile to survive even a slight hint of disaster, you may want to put any extra monies towards the nest egg versus the plastic one. A solid emergency fund is something you can depend on in rough times, unlike your credit cards.