Using credit cards as an emergency fund

You might wonder if your credit cards could be used as an emergency fund.

Unfortunately, the answer is not clear cut, but it depends on your immediate situation. Basically, if you need a loan to cover your needs,  you should avoid the loan. If you don’t need a loan, then the loan is probably a decent thing.

Remember, your credit card is nothing more than a short-term loan for the balance of the month until your next bill. It is when you start to use short term credit card loans for a long time that you begin to have problems.

Too many people are already in credit card debt. This is likely costing them a great deal of income in interest. That interest is taking away from their ability to invest for the future.

If you carry a credit card balance,  adding an emergency charge will not help your situation in the long run.  You can do some substantial damage to your finances and your credit score.  You’ll probably end up paying interest on the charges, and you’re credit score will be hurt since you’re using more of your available credit.

On the other hand, if you have an emergency fund put away and you pay your credit card balances in full every month then using your credit card in an emergency is just a short-term bridge loan with no interest.  You can use the card then pay it off in full with your emergency savings.

Taking on additional debt to get you out of an emergency situation is not optimal. I understand if you must do it to get yourself out of a bad situation as that is the reason for the emergency fund. It is far better if you start today to build your emergency fund so that your credit card is simply a 30-day interest free loan.

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