The Surprising Downside of Using Credit Cards as a Gig Worker

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Credit cards can be beneficial. But keep reading to learn more about when using credit cards as a gig worker may be risky. [[{“value”:”

Nationally, credit card balances have hit more than $1.1 trillion. While that’s a huge number, what matters most is how credit card debt impacts individuals. As a gig worker, you may not be able to approach credit cards in the same way as traditional employees. In fact, here are some of the special challenges you could face.

Being overly optimistic may land you in high-interest debt

According to an article in Psychology Today, entrepreneurs like gig workers are more optimistic than those with traditional jobs. In fact, compared to people in salaried jobs, entrepreneurs tend to be over-optimistic about their chances of success. While optimism is undeniably beneficial in many ways, it can be a problem if it leads you into debt.

Let’s say your gig is seasonal, or you have periods where you’re without a job. That means you’re not earning money during that time. If you’re convinced the calls will start rolling in despite a lack of evidence, you may pull your credit card out too often and find yourself in a spiral of high-interest debt.

That’s not to say you ever want to lose your optimism. It just means that you need a repayment plan, regardless of how busy you are professionally. For example, if business is slow and you’re not sure when you’ll work next, decide how you’re going to pay the credit card off, preferably without incurring interest.

Do this instead: If you don’t plan to pay the card balance in full, decide if you truly need the purchase you were about to make. If you absolutely must make the purchase and your credit score is high enough, consider applying for a 0% interest rate credit card. Typically, a 0% interest rate card gives you a set period of time to repay the debt without getting hit by interest charges.

Available credit can offer a false sense of security

Consider what you would do if your car broke down or you ran into an unexpected medical bill. If you shrug off the concern because you know you can always use a credit card to pay, you may have a false sense of security.

These scenarios illustrate why:

Scenario No. 1: Your pet breaks its leg, and you’re hit with a $1,000 veterinary bill. You pay the bill using a credit card with a 17% APR and make a monthly payment to the credit card company of $50. By continuing to make a $50 per month payment, you pay the bill off in full in two years and pay an extra $187 in interest.Scenario No. 2: Knowing your work may be hit or miss, you build an emergency savings account. You pull money from the account to pay the veterinary bill. Instead of making monthly credit card payments or covering the cost of interest, you use that money to rebuild your emergency fund. This is the preferable scenario.

Do this instead: Take a little time to build an emergency fund before going all-in on gig work, if possible. Doing so will save you money and can prevent unnecessary stress.

Credit cards can make tracking difficult

If you use one credit card for all business-related expenses and another for personal purchases, you can easily track which is which at tax time. However, that’s not always how small business owners like you use credit cards. If you sort of shoot from the hip when it’s time to make a purchase and use the credit card with the highest available balance, it’s easy to mix expenses.

Let’s say you pick up T-shirts with the name of your business printed on them. During the same visit, you find baseball caps on sale that will be great for your softball team. You use the same credit card to pay for both items. While it’s possible you’ll remember which purchase was for the business and which was personal, you’ll still face the hassle of going through each purchase made throughout the year to sort it out. The IRS may accept the T-shirts as a legitimate business expense, but it won’t be as happy with the hats for your softball team.

Do this instead: If you’re going to use credit cards, use one card exclusively for business expenses.

Finally, if you’re a gig worker looking for the best credit card for your business, compare cards until you find one with the right features for you. As long as you use it wisely, it’s a handy tool to have in your pocket. Remember this one rule: Use the card, but don’t allow the card to use you.

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