Is it a good idea to buy things on a credit card during the coronavirus outbreak?
I'm sure if your card is issued by a major ASX bank like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), then the CEO of that bank would say "yes" to the question of spending on a credit card.
In normal circumstances I'd say it's not a good idea to buy things on a credit card. If you don't pay off your entire credit card amount every time then you run the risk of getting into a debt spiral where the interest is building faster than you can pay it off. Compound interest can be a terrible foe if you're on the wrong side of it.
Credit cards are one of the worst things in financial terms.
But what about the coronavirus effects?
The coronavirus is causing terrible human impacts. It's also causing havoc financially. Lots of people have lost their income. Surely it's okay to use a credit card then?
Well, hang on. Credit cards haven't suddenly turned into a great product just because of this emergency.
If you've lost your income I think you need to look at look at other financial options first. Most people will be entitled to the jobkeeper or jobseeker (and coronavirus supplement) payment if their income has disappeared. Hopefully this support can see you through to the other side of this period.
If you're able to reduce your expenditure to match your income then you should be sustainably live at a lower level of spending for the short-term, which would mean not needing to utilise a credit card.
If your normal spending is still too high, you may be able ask for payment relief from some of your biggest expense categories, particularly paying for the roof over your head. Banks are willing to do payment holidays and landlords may also be flexible.
The government is even allowing you to tap your superannuation for $10,000 this tax year (and next year). But that takes away from your retirement fund, so I'd suggest refilling it when you're able to in a year or more.
If the only way to put food onto the table is by using a credit card then of course you need to do what's necessary – I just think it should be used almost as a last resort (and those short-term loans with huge interest rates should also be avoided).
Foolish takeaway
Credit card debt can be a difficult thing to recover from, particularly in this environment. I'd avoid it where possible.
