When Credit Cards Come to the Rescue

Sometimes, relying on plastic can be the best response to an emergency – but follow these tips.


The prevailing wisdom tells us that the best way to prepare for an emergency is to make sure you have an emergency fund. That would mean having a certain amount of cash parked in a high-yield savings account that you break open only as a last resort. But there are people who've decided they would rather go against the grain and take the risk of using a credit card for emergency purposes. When you have no savings tucked away for a rainy day, a credit card can certainly be a useful tool to have around. But bear in mind that there is a right and a wrong way to use plastic for emergencies. By following these steps, you can avoid experiencing any pitfalls when using your credit line in this manner.

Define "emergency" before pulling out your credit card. Many people who initially decide to pick up a credit card for emergencies end up using their card for all kinds of expenses. Then when a situation arises, they find out that they've maxed out their cards and no longer have room to accommodate their emergency. This defeats the purpose of having an emergency credit card in the first place. Before applying and receiving a card intended for emergency use, it's always a good idea to make sure that you and your family define what it means to be in a true bind. It's not about buying shoes, going out to eat, or taking a vacation. Ensure that everyone with the authority to use the card understands the parameters and conditions under which the card can actually be used.

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Pay off the balance as quickly as possible. If you do have to use your emergency credit card, make sure you work diligently to pay it off as quickly as possible. Although it may not be possible to pay your debt off in one billing cycle, you should strive to get rid of your balance as quickly as possible to avoid paying interest on it each month. You can do this by working overtime, picking up some freelance work, and applying any extra cash that comes your way towards your credit card debt.

Select the right kind of credit card. If you intend to carry a credit card for back up and plan to retire the balance quickly, then you should opt for a card that has good to excellent terms. Check out a balance transfer credit card or 0 percent interest credit card for this purpose. These types of cards typically have a 0 percent introductory APR for a certain length of time (from 6 months to 18 months) for purchases, balance transfers or both. They are a suitable choice if you use them with the intention of paying them off as quickly as you can, before the introductory rate expires.

Start creating an emergency savings fund. With an emergency credit card to cover you, you may find yourself feeling comfortable. Maybe a little too comfortable, in fact. But remember that while you carry this card, your focus should really be on building your own emergency savings fund. The goal here is to release your dependency on using such a card for emergencies, sometime in the future. So start saving money! Building emergency savings into your monthly budget is vital to becoming financially savvy.

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Charge instead of withdraw. If you have a choice in how to handle an emergency situation, be sure to use your card as a credit card rather than as an ATM card. Most credit card companies charge a higher rate of interest on ATM withdrawals from your card. Many times, they may also attach an additional fee to each ATM transaction. So, if there is a choice, always charge it.

Sleeve the card. You definitely want to carry your emergency credit card in your wallet so you will have it in the event that an unwanted situation arises. However, it is always a good idea to separate the card from the stack of other cards and cash in your wallet by creating a paper sleeve for it. Dave Ramsey offers sleeves for credit cards that state, “using this card can be hazardous to your financial health.” You can also save some money by making your own sleeve with a custom warning message to remind you of the proper use of your card. Hopefully, by fashioning a sleeve, you'll think twice before using your credit line for anything other than emergencies.

By implementing these strategies for using your emergency credit card, you can avoid the pitfalls that many encounter when using plastic. You'll also have the security of knowing that if an unexpected situation arises, you have a backup plan.

Silicon Valley Blogger is a full time blogger and online entrepreneur who writes for The Digerati Life and The Smarter Wallet sites that cover general personal finance topics ranging from investing and saving to credit and debt management.