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Credit card rewards may not be your first thought when it comes to preparing for a recession, but they can offer valuable savings when money is tight.
Between growing economic uncertainty and inflated prices, you may already be prioritizing things like building emergency savings, diversifying your income, and paying down debt. Here’s why securing the right credit card with rewards that fit your budget can be a great way to prepare too:
Related: Best cash-back credit cards
What happens with credit cards in a recession?
While we can’t predict exactly how credit card companies will react to a recession, we can look to the past for some idea of what to expect.
Just like consumers, banks and credit lenders get more cautious during periods of economic downturn. That can have a big impact on how you use and access credit.
For one, it may get more difficult to qualify for credit cards as banks tighten lending standards. Data from the Federal Reserve Bank of St. Louis shows that the percentage of banks tightening standards for credit cards skyrockets through periods of economic uncertainty, including the Great Recession and most recently during the downturn following the outbreak of the pandemic.
These tighter lending standards could mean increasing the minimum credit score required to get approved for a new card or lowering credit limits for those who are approved.
Read more: What happens to credit card welcome offers and bonuses in a recession?
At the same time, recessions also make it more difficult for existing cardholders to pay down their credit card balances. More people may turn to credit cards to make ends meet through periods of financial hardship or loss of income — even if they can’t pay down the resulting balances.
Americans already carry more credit card debt than they ever have before. In 2023, credit card debt balances crossed the $1 trillion mark nationwide, and they’ve only grown since then.
That combination of high balances and uncertainty could put more Americans at risk of delinquency in the case of an economic downturn. Delinquencies — the result of late or missed payments on your card account — are already rising, with more than 7% of accounts in serious delinquency (more than 90 days past due) as of the last quarter of 2024. According to historical Federal Reserve data, delinquencies often grow during recessions and peak toward the end of an economic downturn.
4 ways to recession-proof your credit card rewards
If you can avoid delinquencies and debt balances, credit card rewards can help you save money and get more for every dollar you spend. Here are some ways you can make sure you get the best value today and in the future:
Use your rewards
Redeem the credit card rewards you earn rather than letting them sit in your account. Like cash, they’re likely to be worth more today than in the future.
Inflation can decrease the value of rewards you convert to cash back, while points and miles are subject to dynamic pricing models and program overhauls that can devalue your redemptions.
Read more: How credit cards can help you beat inflation
It helps to have a plan for your rewards. Maybe you know you want to take your dream vacation next year, so you’re saving all the rewards you earn this year for a big redemption toward that trip.
Or maybe you’re cutting a lot of your travel plans, but you still want to visit family over the holidays — you can save the rewards you earn on regular expenses throughout the year and cash them in toward your travel during the busy holiday season.
Another strategy is redeeming your rewards at regular intervals throughout the year. This can be a great tactic for cash-back rewards in particular — some issuers even allow you to set up automatic redemptions after you meet a certain minimum or within a given timeframe.
Make sure your rewards cards are working for you
Take an audit of the cards in your wallet now to make sure you’re getting the best rewards and benefits on your most common expenses.
For example, maybe you opened a travel credit card for its airport lounge access and airline status perks, but you’re not traveling as much anymore. In that case, it could be worth switching that card for one that offers more savings on the purchases you make at home: groceries, gas, and other everyday expenses.
Your credit cards’ annual fees are another thing to consider. If you’re paying a lot of money each year to access rewards and benefits that you don’t use, you’re probably losing more value than you gain. That doesn’t mean you should only have no annual fee cards, but it can be useful to do the math and make sure the benefits of your cards are still outpacing their cost.
Related: Are credit cards with annual fees worth it?
Choose the most valuable redemptions
The value of your rewards can also fluctuate depending on how you use them.
If you have a cash-back credit card, rewards value is pretty standard. You’ll get the same return on your spending whether you receive your rewards as a statement credit, direct deposit, or mailed check.
But redemption options are more varied if your card earns points or miles rewards. With many cards, you’ll get the best value when you redeem these rewards for travel — whether you book through your credit card issuer’s travel portal or you transfer to travel partners.
For example, you can get a 25% boost on the value of your Chase Sapphire Preferred® Card points when you redeem them for travel through Chase Travel℠, making each point worth about 1.25 cents. That’s a more valuable redemption than the 1 cent or even 0.8 cent per point value of some other redemptions, like statement credits or gift cards.
Other rewards programs may have increased redemption value for only specific types of travel. If you have an American Express® Gold Card, for example, you’ll get the best value for your Membership Rewards points when you use them to book airfare through AmexTravel.com. Other travel redemptions, including prepaid hotels and rental cars through the portal, won’t get as great a redemption rate.
Read more: Amex points vs. Chase points — Which is the better rewards program?
When you choose the most valuable redemption options, you can maintain the best value for the rewards you earn.
Pay off credit card debt
The best way to increase the value of your rewards during a recession, if you have high-interest debt, is by paying down those balances as soon as possible. The interest you pay on existing credit card debt is always going to cost more than any amount you save with credit card rewards.
From past downturns, we know that balance transfer and 0% intro APR offers — some of the most useful tools for paying down credit card debt — tend to dry up during a recession. Today, you can find balance transfer offers for 15-18 months or even longer. Some of these cards even offer rewards on everyday living expenses that are likely already in your budget, so you can use them to save money long-term after you pay off your balance in full.
Take the Capital One Quicksilver Cash Rewards Credit Card, for example. With this no-annual-fee card, you can get a solid introductory 0% APR offer on balance transfers to pay down your existing balances. Then, the card earns a flat 1.5% cash back on every purchase — a great way to get savings on your spending no matter what you may need to cut from your budget in a recession.
Paying down debt now is also smart because you’ll be in better financial standing if your wallet is affected in the future. Without putting money toward growing debt balances each month, you can focus more on building your emergency fund. Plus, lower balances can improve your credit score by reducing your credit utilization ratio and increasing your available credit.
Read more about today’s top balance transfer credit card offers.
This article was edited by Rebecca McCracken
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
