Smart Way to Utilize Credit & Cash

By: John Hilaire

If you're already unemployed, don't beat yourself up. You're in good company. It happens to the best of us and it often happens more than once. Now that the unwanted event has arrived, if you've established savings, regardless of the amount, and you have some available credit lines, you have two tools that will be a big help to you to get through this time without damaging your credit. Using a combination of credit and cash you can put together a new plan that includes finding that new job and a budget/spending plan that works while you do so.

Prospective employers often pull a credit report as part of the employment process, so to maximize your chances of getting a job, you want the best credit you can realistically have. Stay away from cash advances! The cost to spend money this way is much greater than using the credit card to pay for it. Even if it seems silly, using the card to buy a $10 item is better for you than using a $10 cash advance. Cash advances come with an extra fee, often have a higher interest rate, and often have a maximum lower than your credit limit.

Looking at credit differently. Now that you've shifted from spending to conserving your resources, your credit-use priorities have shifted. You need to recognize this up front by looking at credit differently. Originally, you used credit to spend your income in a different way from carrying around your paycheck in your pocket. You also used it for larger purchases that you needed some time to pay off.

When you're unemployed, possibly for a very long time, you don't have those earnings coming in (you may have a severance package or unemployment benefits, but they're only temporary - and they may not last as long as your unemployment does). Now you can use credit for basic living and job-hunting expenses only. This is just about the opposite of what most people will tell you, but you'll do this only for a limited period of time and for a specific, worthy purpose. If it helps, think of it as borrowing money to invest in a sure-fire investment: yourself and your future.

Preserve your cash for as long as possible by using credit first. This advice may be the opposite of what you've heard in the past. Conventional wisdom says to control expenses by paying cash for as much as possible. The opposite is now the case. Pay with credit for essentials as much as possible and save the cash. You'll keep your overall spending to essentials by closely following a budget.

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