We’ve written about how emergency credit cards are not a good idea because it can really put you in so much debt. A lot of us receive advice about getting rid of our cards and keeping only one for emergencies. Well that may have been given with sincere intentions but a lot of us are interpreting it the wrong way and it is putting us in debt.
Medical credit cards have been put on the spotlight recently and it is not a pretty picture. During a time when we are struggling with various debt problems, here comes another abusive credit practice that you may want to be aware of.
What is the current issue about these medical limited-purpose cards
In an article published on the NYTimes.com, the author discussed how an alarming number of people are being victimized by malicious medical credit card companies. According to the article, these companies target consumers with modest income to avail of these limited purpose cards. The appeal is in having the ability to pay for medical expenses especially when it involves something that is not covered by Medicare, Medicaid or private health insurance policies. While that does not seem bad, it is the details that are alarming authorities and putting household in a financial risk.
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Medical credit cards are offered with an introductory promo of zero interest. To attract consumers to avail of the card, creditors give new account holders zero interest privileges but only for a specific period.
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Medical credit cards adapt a high interest rate when the promo period expires. This increases the finance charge that is added to the balance of the card.
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Medical credit cards give heavy penalties to those who carry over balances to the next month.
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Medical credit cards are offered through the practitioner’s office or clinic where some consumers think they are being given in-house financing. It is usually not clear that they are getting high interest credit cards.
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Medical credit card companies do not conduct a credit check on the applicant of their card.
These offers are made when consumers are feeling most vulnerable because of a medical emergency. Just when they are panicking for lack of finances and the need for medical attention, it will be very easy to encourage them to sign up for the card. Doctors, dentists and other medical professionals do not mind this because they get paid immediately – regardless if the consumer is buried in debt for it.
The article is calling for regulatory actions for medical credit cards because it is very easy for consumers to fall prey to it. If your child is sick and you do not have the money to pay for health care services, these cards will come like a blessing in disguise.
The article notes how more and more people are signing up for these credit cards because it helps them deal with medical emergencies – something that could mean life or death if not financed immediately. However, this can put vulnerable under so much debt if they are unable to pay for it in time.
Why you should not rely on credit cards for medical emergencies
This issue brings to light more evidence how having no emergency fund can be worse than what you expected. It is important for you to prepare for this and that does not include applying for a credit card.
There are so many reasons why using a credit card for emergencies is a bad idea. When you get past the situation, you have to deal with yet another problem – paying for the card balance. You cannot ignore it because you will just be creating more financial troubles. Instead of relaxing and moving forward, the credit card payments will continue to be a reminder of what you experienced.
The best way for you to prepare for an emergency is to simply build up a cash reserve fund. Here are the reasons why.
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When you pay off the financial requirements of the emergency, you can forget about it after.
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You will not be burdened with high interest rates. Whatever you will pay for will only be the amount needed.
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There is a sense of financial security that any event can happen and you can fix it immediately.
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Spending cash is psychologically more difficult to do so you will be more encouraged to get financial aid or look for better alternatives to help with the crisis. There are various benefits especially if you come from a low income family.
If you want to keep a credit card for emergencies, we strongly advise that you prioritize your cash emergency fund first. That is the only way that you can consider yourself prepared for any unexpected circumstance.
Make sure you have at least 9-12 months worth of funds in your savings account. It usually takes an unemployed individual 9 months to get a job and that means you need to use your savings in the meantime. If you want to feel more secure, you can continue to grow that some more. It all depends on what you think is needed by you and your family.