Relying on Credit for Necessities

The increasing cost of daily necessities—most noticeably groceries—is again closing the gap between income and expenses. With few places to make cuts, many people are resorting to credit cards to make ends meet. According to data from the Federal Reserve, consumers' total credit card debt reached $1.03 trillion in the second quarter of 2023, the highest amount on record. Though the use of plastic may work in the short-term, be cautious about using credit cards as a long-term solution to cash-flow problems.

Even if you're still able to make the monthly payments, relying on credit cards could put you into a danger zone. For example, are you charging more than you used to? Or carrying over part of your debt into the next month when you used to pay off the full balance each month?

If your credit card debt becomes so high that you can't even make the minimum payment within 30 days of its due date, your credit score could drop by as much as 100 points. That late payment will stay on your credit report for seven years, making it harder to get loans in the future.

Recession-, inflation-proof your finances

If you're starting to feel the pinch of higher prices, here are a few ways to protect yourself from serious financial trouble:

  • Figure out how much you're spending on gas, groceries, and other necessities every month compared with a year ago. You may not even realize you're spending more, because you haven't changed your lifestyle.
  • Look for reductions in income. For example, retired consumers may find they have to tap into their principal to achieve the same annual income they used to get from the return on their investments.
  • Revise an outdated budget using the information you gather. Identify where you can make cuts. Start with any remaining luxuries but be prepared to economize on necessities.
  • Plan for further price increases. Looking at your new budget, ask yourself how you would make ends meet if gas went up another dollar or groceries cost you an additional $75 per month. Recession- and inflation-proofing your finances is all about planning, as opposed to reacting.

If you're already watching your debt climb and you can't see any alternative to using credit cards, you may want to talk to a credit counselor. They can show you how to reduce expenses or increase income. They are also familiar with all sorts of free or low-cost assistance programs. You can find a list of agencies at the National Foundation for Credit Counseling.

If you're not in financial trouble now, use this time to be proactive. One of the best things you can do is to start or increase an emergency fund. Then tap it, rather than credit cards, when you need help making ends meet. And remember, the people at your credit union are here to help. Don't wait until you're in deep trouble to ask for a financial checkup. The earlier you ask for a review, the better the outcome.