Credit Cards and Emergencies | CreditShout

Credit Cards and Emergencies

By Kevin / August 12, 2010

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One of the most often-cited reasons for needing a credit card (usually by teens or young adults) is that they can be used in the event of an emergency. But is this really a valid reason for getting a credit card?

It all depends on what is meant by the term “emergency.” If if refers to certain unexpected situations like needing a tow truck on a deserted highway or getting stranded at an airport after a flight cancellation, then having a credit card may come in handy.

But for many, “emergency” really means “an emergency fund that I can tap into” instead of saving money for a rainy day fund. And this is a bad idea for several reasons.

1. A true emergency fund in a savings account earns interest. Using your credit card for emergency funds accrues interest which must be paid back in addition to the principle.

2. In practice, “emergencies” often end up being “another round of drinks” or “that pair of shoes I really want.” This fosters poor spending habits which can ruin your credit.

3. You have to make monthly payments on a credit card emergency fund – and if the emergency is serious, you may have trouble meeting that obligation.

4. The purpose of a good emergency fund is to keep you out of debt. Which is exactly the opposite of what a credit card emergency fund accomplishes.

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