3 Reasons Your Credit Card Isn't a Good Backup Plan for Emergencies

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Credit cards are good for lots of things, like helping you earn rewards and improving your credit score if they are used wisely. But there’s one thing they really aren’t good at.

Credit cards make a terrible backup plan for emergency expenses. If you are hoping that you can just charge surprise costs on your card, you could end up with a world of problems with your personal finances when a rainy day arrives.

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Here are a few big reasons why you shouldn’t count on your cards to be there for you when things go wrong.

1. You can’t always charge unexpected expenses

One big reason why credit cards aren’t a great solution for emergencies is that you can’t always cover every cost with a credit card.

For example, some contractors won’t take credit cards. So if you have a home repair and need to hire a plumber or an electrician, you can’t guarantee that your credit card will be accepted. Likewise, your mortgage lender or landlord and your car loan lender probably don’t accept credit card payments, either. So if you miss some work and can’t afford your housing costs or car payment, you can’t just charge these bills.

You need money in the bank — ideally three to six months of living expenses — to be sure you can pay for some of your most important expenses if something goes wrong.

2. You could do long-term damage to your finances due to high interest rates

Credit cards come with high interest rates, which average 21.47%. If you have to charge payments you are making for emergency expenses, you’re going to make those costs even more expensive by paying interest on them.

If you charge emergency costs on your card, you will have to make payments toward your balance until you have paid it off in full. This could take months or even years, depending on how much you charged. During that time, you’re going to be using income to cover those costs that you can’t use for other things.

You don’t want to make your emergency cost more and reduce the chances you’ll be able to afford to live within your means in the future. And that’s exactly what could happen if you rely on credit cards for emergency expenses.

3. You may not have enough credit to cover your emergency costs

Finally, the last big problem with making a credit card your emergency backup is that you may not have enough credit to cover the bill. If you’re out of work for a few months, you might quickly hit your credit card purchase limit and still have living expenses to pay.

Even a home repair could be outside of your credit limit, as something like a new air conditioner could cost $5,913 on average, and many people simply don’t have $6,000 in available credit.

You don’t want to find yourself unable to pay for an unplanned bill or stuck paying huge interest costs on your emergency expenses. So don’t use a credit card as a backup plan in case of surprise costs. Instead, aim to save three to six months of living expenses in a savings account. You can get started with your emergency fund by saving your tax refund or a work bonus, or cutting a few fixed expenses (like canceling a gym membership) to redirect money to savings.

It may take a little time to save for emergencies, but you should do it because relying on your credit cards is a decision you’re likely going to come to regret.

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