Credit cards caused a lot of us to sink in debt when the recession happened in 2008. Most people wanted to get rid of it entirely but financial experts advised that for the sake of keeping our credit scores high, we must retain one card – at least for emergencies.
We all know the devastating effects of not being prepared for an emergency. Like what they say in the medical industry, prevention is better than cure. In the financial world, that prevention can only be done through an emergency fund.
That seems like a sound plan right? But have you ever thought about the effects of using emergency credit cards?
Pros and cons of using credit cards for the unexpected
If you think about it, we all got into so much trouble in the past because we used emergency credit cards. Losing our jobs is considered an emergency after all and we started using it to buy the things that we needed like food, clothing, groceries, gas, etc. But without the income to pay for the charges, we soon found ourselves in so much debt that we struggled even more to rise from the financial slump that we were in.
There are advantages and disadvantages of using emergency credit cards and let us dwell on them one by one.
Advantages of using emergency credit cards
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You get an unlimited supply for emergency fund. After all, credit limits are quite high and you can keep on using your credit card until you reach this limit.
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You don’t have to go to the bank or ATM to get the cash. Most establishments accept credit cards and if something happens, you can save yourself the trouble of making a side trip to the bank or ATM to have the means to pay the unexpected cost.
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You don’t have to apply for a loan. You can immediately use the credit anytime – without applying for it the traditional loans require.
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You can enjoy the cashless transaction. One of the main benefits of a credit card is the fact that you do not have to carry too much cash around.
Disadvantages of using emergency credit cards
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You are not really spending your money. While you are using your credit card account, you are paying with the money of the creditor – not your own.
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You solve a problem with another problem. Although you are paying the immediate need, you are only postponing the actual payment to a later date. You need to pay back the money used because it is the creditor’s money. You have to deal with the payment plus interest – in case you cannot afford to pay for the expense within the grace period.
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Your account may have already been cancelled. Sometimes, emergency events happen too far in between and your credit card could have already been cancelled. If there is no activity for the past 6 months, you may be unable to use that card for emergencies.
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You will not put more effort in looking for other financial sources. There are programs and benefits supplied by the government and if you rely on your cards immediately, you may stop looking for the benefits you are entitled to.
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You may be buried when too many emergency events strike at the same time. The unexpected can really catch us unaware and you don’t know when another will strike. If they come in successive order, you could find yourself in deep trouble.
If you really want to use emergency credit cards, you must know how to utilize cards without ending in debt. There are various tips to follow that will keep credit cards from hurting your financial situation.
Use the card to support your emergency cash fund
If you really want to be prepared for an emergency, we suggest that you still grow your cash reserve. Make it a priority to grow your cash fund and use that first when an emergency strikes. That way, you don’t have to worry about paying anyone back for the expenses that the unexpected event incurred.
We are not saying that you let go of the emergency credit card. That can still be used but only to support the cash fund that you have stashed away – in case it ends up not being enough for your needs.
Make sure that you select the right type of emergency card that will give you what you need. We suggest that you use online comparison sites that will help you look over the terms that credit card companies offer. You can use CreditDonkey.com or a similar site to do your credit card research.
In searching for emergency credit cards, make sure to look for the following qualities.
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Sufficient credit limit.
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Low interest rate.
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Acceptance – should be accepted in most establishments if not all.
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Payment terms.
Here is a video of finance guru, Dave Ramsey and what he thinks about emergency funds. Listen to what he has to say about how much cash you should stack up on the side and how it should be kept and used for unexpected expenses only.