Many of us have at least one credit card earmarked “for emergencies only.” This is understandable, as unexpected expenses can crop up at any time.
The last thing you want to experience when you’re at the hospital emergency room or a vet’s office is having absolutely no way to quickly pay for potentially life-saving services. Ditto goes for paying a tow truck and mechanic if your car breaks down on the side of the highway — or if there’s a family crisis and you need to fly across the country at a moment’s notice.
According to research from Bankrate, 16 percent of Americans say they’d use a credit card when faced with a sudden $1,000 expense. While there’s nothing automatically wrong with using credit cards to stay afloat during financial emergencies, it’s important to do everything you can to minimize your chances of kicking off a hard-to-escape debt cycle.
Here’s what to know about using credit cards for emergency expenses.
Tips for Using Credit During a Financial Emergency
There are a few key reasons most financial experts advise prioritizing an emergency savings account rather than reaching for a credit card during an emergency. These reasons include:
- Credit cards tend to carry high interest rates, which means these debts can grow quickly.
- It’s easy to slip into the mindset of relying on a credit card in place of building an emergency fund, which can leave you vulnerable.
- Any additional emergency expenses may exacerbate your existing card balance, meaning it’ll be more difficult and take even longer to pay down.
The takeaway here?
Credit card debt can spiral out of control quickly, no matter how it starts. Case in point: Many of these Freedom Debt Relief reviews cite overwhelming credit card debt as a persistent problem — one that often requires a settlement program or other intensive strategy to address.
Still, life happens fast and we sometimes have little choice but to use credit during a crisis. Paying more than the minimum due in the following months will work down the balance faster and reduce the total amount of interest required to eliminate it. This requires finding as much extra money in your budget as possible — hint: use a spending tracker app — and rerouting it toward your emergency credit card debt. Making some lifestyle changes tends to be worthwhile if doing so helps you get out of debt sooner and less expensively.
If you’re not having much luck chipping away at your credit card debt on your own, consider meeting with a credit counselor to discuss debt management, exploring a settlement program, or trying one or more consolidation methods.
Tips for Building an Emergency Fund
Building an emergency fund ahead of an unexpected expense will reduce the amount you’ll need to put on a credit card when something goes awry.
The good news is you can build an emergency fund even on a shoestring budget.
Commit to depositing a percentage of each paycheck into a designated, easily accessible savings account. Even if you can only spare $25 per month, that’s still a few hundred dollars per year of insulation against creating debt. Look for ways to minimize your expenditures, such as eliminating entertainment subscriptions or underused memberships — and devote those dollars to padding your emergency fund.
The goal here is to amass at least three months of living expenses. If you find yourself in need of extra motivation, set a moving target. Start with just $250 or $500. Increase your goal amount as you hit each increment rather than overwhelming yourself with a seemingly “impossible” goal to start.
Using credit cards for an emergency situation is an option, but you may pay a significant sum in interest to carry that balance. In the meantime, focus on building an emergency fund as an alternative.