The use of an emergency credit card is more common than you think. Although people are advised to save cash to build enough reserve in their emergency fund, it is not always possible. With the low wages and the high cost of living, it’s hard for some people to prioritize this. In fact, some people have zero emergency fund to rely on. So when they are thrust into a crisis such as this pandemic, they have nothing to spend. And that leads them to use credit cards to help their family survive.
According to one report, the most common reasons why people have credit card debt include medical bills, car repairs, or home maintenance expenses. If you notice, all of these are emergency expenses. It may be an unexpected trip to the ER, an accident, a busted transmission, a broken pipe, or a defective piece of equipment. There are many ways that unexpected events can happen. And people are using their credit cards to pay for the expenses that arise from these.
While you can rely on credit cards to get you out of a tough financial situation, it doesn’t mean it should be your first go-to source of funds. It will be a quick-fix. But it will not really solve your problems. In fact, if you don’t know how to handle this correctly, it could make things worse for you.
3 ways an emergency credit card is dangerous
There’s no doubt that the first thing that you should do is to save cash and use it to fund your emergency expenses. This is the best option to help you survive emergency situations. Why? Because it’s your money! It’s not someone else’s cash. You don’t have to worry about paying it back.
Apart from that, relying on emergency credit cards first will bring these three dangers into your life.
It won’t motivate you to search for other solutions
There are always better ways to finance your emergency expenses. But if you know that you can use your credit card, you won’t bother to find out what it is. You’ll just go for the easy way out. After all, it only takes one swipe of your card, and you are done. The financial need is paid. Never mind if the money you used is not your own. Right?
Well, that’s what makes it dangerous. There wasn’t any extra thought done. And that’s unfortunate because they could have been another way to pay for that without using debt. You could have avoided debt. But since you knew you can rely on your credit card, you did not do your research. You did not dig further to find another way to pay off the emergency need.
The alternatives are all there. And they are free. You just have to know where to get them so you can ask or apply to get it.
It can easily push your finances over the edge
An obvious reason why an emergency credit card is dangerous is that it can easily push your finances into a debt pit. This is especially true if you go through one crisis after another. And after the events of 2020, we all know that it is possible for that to happen.
The pandemic forced people to go on lockdown. In effect, businesses were forced to close. With no profit coming in, some had to close permanently. Or they were forced to lay off some of their workers. This resulted in millions of jobs being lost across the country. And now, the whole world is going through a recession.
That is one devastating crisis after another. And what happens to you if you only rely on your emergency credit card? For sure, you used your card to pay for all the products you bought in bulk when the lockdowns started.
What if you also lost your job? You have to keep on relying on your card to pay for your basic needs. How long before you max out your cards? We all know that once that happens, your debts have reached an amount that would be harder to pay off. If you factor in the high-interest rate, that would make your debt grow really fast. If you only pay the minimum payment requirement, you could be paying off your debts for a very long time.
It can add to the stress caused by the emergency
With your debts mounting, you are not just facing the stress brought about by the emergency situation. You also have to deal with the stress that comes with debt. One survey revealed that debt is one of the reasons why people feel stressed about their finances. And that is not surprising. When you have debt, you have to live with a restricted budget. Instead of being able to use all of your income for your preferred expenses, you have to set aside a portion of that towards your debts. The stress gets worse if your income is suddenly compromised.
But whether you can afford your payments or not, this is still additional stress for you. If your emergency is a health-related one, it will make things worse. Instead of focusing on getting better, you have this additional stress to deal with. And we all know that stress is not good for your health. But that is what you’ll get if you use an emergency credit card.
Tips to use an emergency credit card properly
Of course, we cannot rule out the fact that emergency credit cards do have their uses. Because if you go through one crisis after another, you might end up still using one. Your cash emergency fund will run out if it has to pay for a lot of unexpected situations.
The good news is starting with your emergency cash fund will minimize the debt that you have to use. And if you learn how to use your emergency credit card properly, you might not end up in trouble after all.
There are two things that you can do.
Ask yourself if it’s really an emergency
Before you pay for an unexpected expense make sure that it’s an emergency first. Have a definition of what an emergency is. Running out of cash is an emergency. But that does not mean you should use the card for any expense. This is why you can define what an emergency really is. For instance, health-related expenses are an emergency. Basic necessities are also emergency expenses if you run out of cash because of job loss.
Make sure that you are detailed about this list so you do not make a mistake.
Use the right credit card
Another thing that you need to do is to use the right credit card. For instance, a secured credit card will give you a low-interest rate on your debts. But if you don’t have that, just choose the card with the lowest interest rate.
You can also choose to use the card that will give you the most rewards. That way, you can enjoy freebies or even cash-back rewards every time you use the card.
The credit limit is also worth considering. An emergency credit card with a high limit will give you a lot of room for your purchases without maxing out the card immediately. When you max it out, you’ll be in danger of being penalized for that.