We all have our own definitions of the word ‘emergency.’ Regardless, during emergencies, people often make decisions without correctly thinking about the risks or results of their actions.
Having a credit card for emergencies is a good idea, but only if you have calculated all the risks and are sure that you will be able to comply with the repayment agreement.
In this article, you’ll learn, understand, and know whether you should ever use a credit card for an emergency.
Should you use a credit card for emergencies? YES
If you are caught up in a financial crisis requiring immediate attention and happen to have no cash, then using a credit card to manage your expenses is perfectly fine.
- Start paying back your emergency spending immediately
Generally, credit cards have high interest rates, suggesting that without full monthly repayments as scheduled, your credit card debt will rapidly increase, giving you a high balance.
It is vital to pay off the debt as fast as you possibly can to avoid falling into debt and ruining your credit score. Credit specialists offer services in helping repair your credit score from credit accounts acquired at a wholesale price and using them to help clients boost their score.
2. Use the card with low interest rates
When deciding on using a credit card for an emergency, in case of a big crisis, use your lowest-rate card to avoid drowning in debt as a result of the rapid interest rate growth on high-rate credit cards.
3. Build a repayment plan
You should have a plan on how to pay off your debt. This may lead to abandoning unnecessary expenses but will help in eliminating your credit card debt.
Why you shouldn’t use credit cards for emergencies
1. You are at the mercy of a creditor
Due to protocol, if you have suffered crises or maxed out your credit card, you are likely not to get help from your creditor regardless of the emergency.
2. It is a loan with interest
The moment you use a credit card to access emergency funds, be informed that you are practically taking a loan and you have to repay it no matter how significant your emergency may be.
3. Makes it hard to save
A growing debt on your credit card is bound to affect long-term goals, including putting money into emergency funds. Without adequate funds in your savings, it is going to be almost impossible to cover your unpredicted expenses when you need to, eventually making use of your credit card as the only reliable option.
In conclusion, everyone will be subject to a crisis at some point in their life, but to be prepared, as one you will need to build an emergency fund. Most financial professionals agree that creating an emergency cash fund with 3-6 months of expenses in it is a good start in preparing for the inevitable.
Whether the situation requiring funds is an emergency or not, is totally up to you. Nonetheless, with this article as a guide, you will be able to decide with ease.