One unexpected effect of the COVID-19 pandemic is that it has shored up the nation’s wallets.
Suddenly unable to eat out or travel in 2020, consumers reduced spending and used pandemic relief payments to cut their credit card debt. Credit card balances fell a collective $108 billion in 2020, the largest annual decline since tracking began in 1999, according to the Federal Reserve Bank of New York.
Of course, reining in credit card spending in a locked down world is relatively easy. As Americans begin to regain some freedoms, the question remains: Will this newfound frugality last? These five credit card habits that emerged during the pandemic are worth keeping.
Spend Less and Save More
If you eliminated credit card debt during the pandemic, now is not the time to start spending again. Instead, continue to emphasize saving rather than spending.
The coronavirus pandemic created both a health crisis and an economic crisis that led to the loss of millions of jobs and caused Americans to tighten their purse strings and save more. In fact, households went on an “unprecedented saving spree,” according to the Federal Reserve Bank of Kansas City, Missouri.
Savings as a percentage of disposable personal income leaped from 7.2% in December 2019 to a record high of 33.7% in April 2020. In just one month – March to April 2020 – the savings rate nearly quadrupled.
As 2021 dawned, Americans had done such a good job of paring down their spending that many were awash in cash. In fact, half of Americans who received a stimulus check in March 2021 said they planned to use it to pay down debt, according to a LendingTree report.
Putting money into savings is wise because it helps you enjoy life with more security and less stress, especially when emergencies arise, says Lauren Greutman, financial coach and author of “The Recovering Spender.”
“There isn’t the fear that if something happens, your life will fall apart,” Greutman says.
Building a large savings cushion can also open a pathway to your dreams. “Money saved allows you to design the life you’ve always wanted,” she says.
Follow a Budget
About 80% of Americans say they have a budget, a jump from 68% two years ago, according to a Debt.com survey of more than 1,000 people. That said, many people find the notion of creating a budget – and sticking to it – about as appealing as cleaning bathrooms or eating broccoli.
“The word ‘budget’ has gotten a bad rap,” says Rachel Cruze, personal finance expert with Ramsey Solutions, a faith-based financial counseling firm. “Many view it as a straitjacket that will keep them from doing what they want.”
Try to reframe a budget as an “action plan” for your money that gives you permission to spend responsibly, Cruze says.
If you can’t seem to follow a budget, Greutman suggests thinking more deeply about the benefits of saving. “The key to sticking to a budget is finding a reason to get excited about it,” she says.
Focus on why you are creating a budget, Greutman says. Are you saving up for a vacation? Do you want to pay down debt to improve your credit score for a lower interest rate on a car loan or a home loan?
“The goal of paying down debt isn’t an exciting enough reason to budget,” Greutman says. “Set a goal after that. What do you want to do after you pay down debt?”
Track Your Credit Score More Closely
Free access to credit scores – and credit reports – during the pandemic could be helping consumers maintain or even improve their credit profiles.
The average FICO score was 711 in 2020, an eight-point jump from the previous year and the most significant increase since 2016, according to the credit bureau Experian.
Although nearly 1 in 3 U.S. consumers has a subprime credit score, this population has dropped by 12% since 2020, Experian reports. Subprime scores fall between 580 and 619, according to the Consumer Financial Protection Bureau.
Wherever your score lies on the spectrum, watch it closely to keep your momentum going. Many credit card companies and other financial institutions offer the perk of free credit score access, so check to see if you have this option.
“Scores are more accessible now than ever, with so many credit card and other bills including scores on their statements,” says Francis Creighton, president and CEO of the Consumer Data Industry Association, the trade group representing the credit bureaus.
You can get both a free credit score and a free credit report from Experian monthly on the company’s website and app, says Rod Griffin, senior director of public education and advocacy for Experian. “So there’s no reason not to know what’s there,” he says.
Also, you can access each of your three credit reports for free weekly through April 2022 at AnnualCreditReport.com. When you pull up your report, look for information that does not seem right, he says.
“If there are signs of fraud, for instance, you can dispute that information,” Griffin says. “If you believe there are things that are inaccurate, you should dispute that.”
Check with your financial provider to see if you have this option.
Use Autopay for Bills
Have you ever felt a pang of panic that you might have forgotten to pay a credit card bill? Putting your bills on autopay can eliminate this worry.
“With autopay, you don’t have to remember,” Cruze says. “You just schedule the payments and they’re taken care of, which means no more late fees and less stress.”
The benefits of autopay stretch beyond your credit card account. Some companies will give you discounts for using autopay.
For example, Verizon customers could save $5 or $10 per line on eligible phone plans with a monthly autopay and paper-free billing discount. Also, online lender SoFi offers a 0.25 percentage point interest-rate reduction when monthly payments are allowed to be deducted from a bank account.
Earn Extra Income
Cutting spending can only take you so far when you’re trying to build up a cash cushion to pay credit card bills or prepare for future financial emergencies. “You can cut back and cut back some more, but sometimes you just have to find a way to increase your income,” Cruze says.
That’s especially true when inflation is eating into the value of your savings. A recent survey of more than 1,000 U.S. adults by Ramsey Solutions showed that 8 in 10 aren’t confident that their money is stretching as far as it once did.
“Higher prices are everywhere,” Cruze says.
Finding a part-time job is one way to fill your coffers to put more money toward bills and savings. You could earn income as a contractor, a freelancer or an entrepreneur.
Your options might include turning your home into an Airbnb, tutoring online or selling clothes on Poshmark, Cruze says.
Just remember that if you decide to work for yourself, you will be responsible for paying your own taxes. They won’t be automatically deducted from your paychecks.
“You need to set aside 20% to 25% for taxes so that doesn’t come back to bite you later on,” Cruze says.
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