Using a Credit Card in an Emergency
An emergency fund is the best way to pay for unexpected expenses. But, even if you do have an emergency fund, you may not have enough time to get the money out of your savings account. That’s one of the times that having an emergency credit card can come in handy. You might also have to turn to credit for an emergency expense if you don't have an emergency fund at all. Here are some tips for when a credit card is your best option for paying for unexpected expenses.
Define “emergency.” Not every situation is serious enough to pull out your credit card, especially if you have the money in your checking account to cover the expense. For example, replacing your refrigerator is a worthwhile emergency. Replacing your television, on the other hand, is not. Make sure what you're spending money on is absolutely necessary because if you don't have the cash, you can't really afford it anyway.
Pick a card with a low interest rate. A low interest rate credit card is better, especially if you can’t pay the balance in full immediately. The lower your interest rate, the less interest you’ll have to pay on a balance that you pay off over a period of time. A lower interest rate also lets you pay off the balance quicker and at a lower cost.
Make sure the card is still active. Credit card issuers often close unused credit card so your emergency card might not be open if you haven’t used it in awhile. A quick call to your card issuer will confirm whether your credit card is still open. If it’s closed, you might be able to have it re-opened right over the phone. You can keep your emergency credit card open by making small charges on it every few months. Make sure you pay off these charges to keep your full credit limit available.
Use a credit card with enough available credit. While you’re calling to ensure your card is still open, you can also check the credit limit and the credit card. If you don’t have enough available credit, your card could be declined. Or, you may have to pay an over-the-limit fee if the transaction puts you over your credit limit.
Pay off the balance immediately. Use money from your emergency fund to pay off the balance as quickly as possible. That way, you won’t have to pay any interest on the balance. If you don’t have an emergency fund, then make regular payments on the balance until you’ve paid it in full. In the meantime, don’t make any additional charges on your card since that will increase the amount of time it takes to pay off your balance.
Be careful taking on someone else’s emergency. Going into debt to help someone else isn't a smart move. Even if they promise to repay you, the debt is your problem until they actually do. Often, people go out on a limb to help someone who's not doing everything they can to help themselves. Avoid putting yourself in this situation. If you don't have the cash to spare, then you technically can't afford to help out.
It’s never too late to start an emergency fund. You may not be able to build up the ideal three to six months of living expenses, but start by saving up $500. Then work towards $1,000 and maybe a month of living expenses and so on.