One of the sources of emergency funding that many of us turn to is the credit card. A credit card is easy to use as an emergency fund, since a credit card is accepted almost everywhere (if issued by a major bank, and with a major company logo). It’s very liquid, and you can usually take your time to repay the money that you spend.
While it can make sense in some cases to use a credit card as an emergency fund, you do need to be careful. It’s vital that you not go overboard, and that you have a stash of cash as well.
Why You Need Cash
It’s important to have a good cash emergency fund. Cash is liquid, so you can access it quickly. But, more importantly, a cash emergency fun can keep you from going into debt as badly when something unexpected comes up. Your cash emergency fund can help you avoid getting into an even worse financial situation.
Make it a goal to build up a cash emergency fund so that you can turn to your own resources when you need them.
Credit Card for Quick Access
In some cases, you might not be able to quickly access the cash in your emergency fund. This is true if you take steps to keep your ATM card for your high yield account put somewhere safe. Or, if you are traveling, or need immediate access to resources, stopping to get cash, or waiting three to four business days to transfer money from your online account to your primary checking account, getting actual cash may not be feasible.
A credit card can be used in these cases to get you by. It can also help to use a credit card because you have the protection of disputing a charge later, and you have another record of your purchase. Using a credit, immediately, has helped me out of a number of tight spots.
However, your credit card should not be your only emergency funding source. It can be part of your overall strategy, but it shouldn’t be the only thing you rely on in a pinch. When I use a credit card in an emergency situation, I immediately pay it off with cash from my regular emergency fund. The idea is to have the instant accessibility without the worry of paying interest. Carrying a balance can make your situation even more difficult, since you are piling up the expenses.
Credit cards can ease the situation. When you don’t have time to get the cash — or when you don’t want the risk of carrying the cash around with you — credit cards make a great option. However, you still need to be careful. Don’t use your credit card as the only emergency fund. Back it up with a cash account that you can draw on later, and that you can use to pay off your emergency purchases.
It all comes down to proper planning and forethought. Plan ahead, live within your means, and build up an emergency fund. Use the credit card only for its convenience.