It's hard enough to create and stick to a budget when you're
working with the same amount of money every month, but new research
suggests that many Americans' income fluctuates wildly from month
to month. While a savings account should be your first go-to choice
when money runs short, credit cards can -- in some cases -- be an
effective tool for managing the slack.
A May 2015
by the J.P. Morgan Chase Institute found that 41 percent of
Americans surveyed experienced income fluctuations of more than 30
percent from month to month. That's like making $5,000 one month
and $3,500 or less the next.
The problem occurs when people with fluctuating incomes allow
their monthly take-home pay to determine their lifestyles, says
Julie Ford, a fee-only financial planner in New York. When there is
a good month, they live more lavishly, and when money is tight,
it's time to scale back. However, if excess money is spent in June
and then less than usual comes in July, you may find yourself with
too little cash to get through the entire month.
Using credit is ideal only if you are disciplined enough to
create a budget that accounts for those expenses. If not, there are
other, perhaps more prudent, ways to adjust your lifestyle to meet
Using credit to bridge the gap
When used wisely, a credit card can provide a quick infusion of
cash. But if you don't pay the balance off each month, you could
end up in a hole too deep to easily dig out of. "People who utilize
credit in this way often end up having to go to someone to help
them pay that back eventually," says Natasha Bishop, a Nashville,
Tennessee-based division manager for financial counseling
organization Apprisen. "It's kind of a vicious cycle. So it's
better not to start it," Bishop says.
However, there are some smarter ways to use credit cards to
manage fluctuating income.
Find a promotional offer.
If you know your income is going to be erratic for a few months
and you want to buy time to bring stability to your finances,
look for a card that offers a 0 percent promotional rate. That's
what Chantay Bridges, a real estate agent in Los Angeles, did
when she would at times go months without a sale. "I would use
cards with a 0 or 1 percent interest rate," she says. Once she
earned a commission on a sale, she would pay the balance off. If
the bill wasn't paid off by the time the promotion ended, she
would find another promotional card to transfer the balance
Take advantage of rewards.
Those who have no credit card debt and enough savings to tide
them over are in the catbird seat.
Rewards are one of the primary benefits of credit cards, Bishop
says. Using them to get cash back or enough points to fly to
visit a relative can even help you come out ahead. The key is
making sure you're not carrying a balance from month to month,
since interest will wipe out any benefits from cashing in the
Use the card with the lowest rate.
If you know you're not going to be able to pay the entire balance
off each month and have multiple credit cards, make sure you're
using the credit card that has the lowest interest rate, Bishop
Above all else, make sure you never miss a minimum payment, Ford
says. Doing so could cause your interest rate to rise and damage
your credit score, which over time will cost much more than that
Ending the shortfalls forever
Unless you have a hefty savings account and are using plastic
strictly to earn rewards, you should wean yourself from the need to
turn to credit, experts say. Even with irregular income, there are
ways to avoid coming up short.
Expect the least.
While it's great to be optimistic, it makes more financial sense
"to build a budget based on the least amount you're going to be
making," says Bishop. Gather four to six pay stubs from the past
three months and base your budget on the smallest payday. Even
when you make more, continue to stick to your bare-bones budget
so "you're not emotionally riding that wave every month," Ford
Create two budgets: one fat, one lean.
One way to deal with income swings without reaching for a credit
card is to create a budget for months when you make a lot of
money and a budget for those leaner times, says Becky House,
education and communications director for American Financial
Solutions. The lean budget would include your basic monthly
needs. During the more prosperous months, you might indulge
yourself by eating out a few times more, but House advises
consumers to "take a chunk of that money and slide that into
Explore alternative money sources.
Credit cards aren't the only source of quick cash. Family members
and friends might be willing to offer you a low-interest or
no-interest loan. There are other creative ways to make money to
help compensate for monthly shortfalls, such as starting a side
business. One service, Activehours, lets employees who get paid
via direct deposit access their paychecks in advance for a
donation. "With credit cards, you're borrowing money that you'll
eventually have to pay back (and usually at a price in the form
of interest or late fees), but with Activehours you're relying
only on yourself and your earned income," says founder Ram
Whatever way you choose to bridge the gap, make sure you're
working to build a more stable future, says House. "Start focusing
on saving enough income to smooth out those rough edges."
5 things people fail to budget for
Work hours cut back? You have hard budget choices