What are the best practices when it comes to credit card use? That’s a long list if you really want to know. But one thing’s for sure, using it for emergency situations is not part of the list. Because experts believe that relying on credit cards to get you out of a tough situation is dangerous. It can quickly put you under mountains of debt – especially if you are using high-interest credit cards.
Unfortunately, not everyone can avoid using their credit cards for emergency situations. According to reports, credit card debt is expected to rise because of the coronavirus pandemic. Nobody was expecting this health crisis to happen. If it’s pushing people to use their credit cards more, then people weren’t as prepared for emergencies as we thought. When the health crisis turned into an economic one, people started to rely on their credit cards to make ends meet.
Is it really so bad that people are resorting to credit card use to survive their current emergency situation?
2 situations when emergency credit card use is acceptable
While it is highly encouraged that you avoid using your credit cards for emergencies, there are two scenarios that make it okay.
When cash is no longer available
The first reason is when you already used up your cash. Not everyone who is forced to rely on their credit cards for emergencies was irresponsible. They probably had some emergency cash fund saved up. But if you have to go through one emergency situation after another, you won’t have time to replenish your cash reserves.
Take the coronavirus pandemic and economic recession as an example. None of us were expecting this to happen. But it did. For the first few months, people were okay. They relied on their savings to get by. With the stimulus checks being distributed, everything seemed to be okay. People still have some cash to spend. But when the health crisis became worse and pushed us into recession, we ran out of cash.
That’s when credit card use became the solution. Some had no choice because they didn’t get the chance to replenish the emergency fund that they spent during the early stages of the pandemic. If this is your current situation, then it’s acceptable for you to use credit cards for emergencies.
When you have the means to pay it back
The other reason for emergency credit card use to be okay is if you have the means to pay it back. Maybe you still have a job. Or you already found an alternative source of income. If that is your case, then you can confidently use your credit card to pay for an emergency situation. Just make sure that you can have a concrete plan to aggressively pay off your balance.
How? Maybe you can use debt consolidation loans. Or you can opt to use balance transfer so you can eliminate the high-interest rates. Just make sure that your repayment plan does not involve paying only the minimum requirement. If you stick with that, it will take you forever to finish paying off your credit card debt. There are a lot of options to make your monthly payments easier. The important thing is you have to be ready with a plan.
3 risks when using credit cards during emergencies
Americans have always been a slave to credit card debts. It didn’t matter if we’ve proven that it can be a dangerous debt to have during a recession. We still use it anyway. And now that another recession is upon us, we are relying on our credit cards once more to make ends meet. If you don’t know how to use credit cards properly, you might be in trouble.
Here are the three risks that can happen if you abuse your credit card use during emergencies.
Gets an unwanted loan
If you use a credit card for emergencies, it’s really like you’re getting a loan to pay it off. Since it is meant to pay for an emergency, this is an unwanted debt. You may not be ready to pay this back. Especially if you have other plans for your money. This debt can derail all your plans. And that can make you feel frustrated and stressed at the same time.
But even if that is the case, you still have to be responsible for the amount that you borrowed. Even if it’s on your credit card, you have to be conscious of how much you’ll owe. This is why before the actual credit card use, make sure you know how you will return it. This debt will haunt you and make your emergency situation worse if you use it recklessly.
Although it’s unwanted, do your research. Find out the options that you have to pay it off. You have to understand how the debt solution will cost you. That way, you’ll be ready when the times comes for you to pay off the debt – even if it was unwanted in the first place.
Makes you complacent
Another risk that you will face when you use credit cards during emergencies is the feeling of complacency. The truth is, when you are in the midst of an emergency, you want to feel calm. It will help you maintain a clear mind so you can make smart decisions about your current situation.
But not when it involves credit card use. You should not be too complacent when you are using your card. You have to keep in mind your limitations. Sometimes, we use our cards like it doesn’t have one. It’s not like when we pay in cash wherein the limit is more evident. You count your cash and know how much you can afford. With a credit card, it’s not that obvious. So you have to be extra careful when making payments. Know how much you really have to pay and stick with it.
Puts you in danger of too much debt
This is a bit related to the previous risk. If you become too complacent with your credit card use, you might end up with a huge amount of debt. You see, a credit card can really feel like it’s an extension of our wallets. That’s dangerous when you are in the midst of an emergency.
Why? Because being in an emergency will put you on high alert. You would want to get out of that situation as quickly as you can. That might make you rush through the whole payment process. You won’t feel the need to go through your different options so you can spend less. When that happens, you could unconsciously pay more than what you should. You’ll end up with a huge amount of debt. If you consider the high-interest rate of credit cards, that can make things worse for you. The longer it takes for you to completely pay off the debt, the higher amount you have to pay for the overall balance you owe.
That’s why if you can avoid it, do not use credit cards for emergencies. Find alternative options if you can help it.