Having a credit card simply as a safety net in your back pocket sounds like a decent idea. However, I am not a big fan of the concept. Sure, emergencies happen and we need to be prepared, but there are far better ways to be prepared than having a credit card. Let me give you a few reasons why…
- Your Emergency Fund Should Cover Emergencies – Instead of having a credit card as your safety net, you should have an emergency fund in the form of a savings account. Depending on your situation and the number of expenses you have, that emergency fund should be around 3-6 months worth of expenses. For some people, that may be $2,000 and for others, it may be $10,000. Either way that may seem like a lot of money, so at the very least, you should have an emergency fund of $500-$1,000 to start with. It is a rainy day fund that will serve as your safety net for most emergencies that come up.
- Your Credit Card Could Be Used As A Crutch – If your only back-up plan for an emergency is a credit card, you’ll become too dependent on it. Let me give you an example. Let’s say your car poops out on you and you’re going to need $600 worth of repairs. If you have a credit card, it would be easy to take it out, swipe it, and just assume you’ll figure out how to pay for it later. There’s no effort or thought put into it. The card has become a crutch. But if you have $500 in your emergency fund and no credit card to work with, it will force you to be more creative. You may try to negotiate with the repair shop to get a discount. You may shop around to get the best deal on repairs. You may talk to family or friends to see if they could help with any of the repairs. Without the credit card at your disposal, it forces you to think instead of just swipe.
- The Temptation May Be Too Strong For Some People – Most people are smart enough to handle the responsibility of having a credit card. But for others, having a credit card is just too much of a temptation. Their idea of an “emergency” becomes diluted. All of the sudden they are rationalizing an “emergency” to be that sale at the mall, the last minute discount on a Spring Break trip, or even Christmas shopping – none of which are emergencies!
When you have an emergency fund, it’s like having an umbrella for when it rains. It’s not a matter of if it’s going to rain, but just a matter of when. Emergencies are going to happen, so you gotta be prepared for them. But a credit card is not a good option for an umbrella.
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You are so absolutely true and it constantly surprises me how few people are actually planning for these emergencies. Life is not always going to go our way so we might as well play the game the best way possible. Personally my wife and I are aiming for 1 year worth of expenses in our savings account but we’re probably not as “normal” as the average person
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At one time, my wife and I used credit cards for “emergencies.” Invariably, it resulted in revolving credit card debt that was difficult to pay off. While I still carry a card today, we have disciplined ourselves to pay it off EVERY month. We carry an American Express card. Although it requires an annual fee, we have to pay it off each month, so it keeps us out of trouble.
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It’s not even the fact of it being a temptation of being dependent.
How long would it take someone to pay back that 600 plus interest? While they are paying that off, what is the cost of giving up other opportunities during that time?
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