Ten Big Mistakes #8: Credit Card as Emergency Fund

Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

I treated my credit card as my emergency fund.

In late 2004, the brakes failed (in a nearly catastrophic fashion) on my 1997 Ford F150. For whatever reason, the brake cylinders chose to collapse as I was attempting to stop at a stoplight. I nearly caused a very large accident, but I managed to get stopped after swerving into another lane and running a red light.

The repair bill was pretty significant – about $300 more than I currently had in my checking account. I remember standing there flipping through the four or five credit cards I had at the time, trying to figure out which one had enough available credit to cover that bill.

Personal finance 101 would have kept me out of this situation, but I didn’t have enough sense to have planned a bit for this brake problem. Instead, I believed that having some credit available on a credit card was just as good as an emergency fund.

That’s just horrible, horrible planning. Here’s why.

Let’s say, on average, I have a major emergency that costs $1,000 once a year in my life. A car breaks down. A job is lost. A family member is ill and you need a plane ticket. There are countless emergencies that can happen in life, so I’m just using that $1,000 once a year emergency as an example.

If you sock away $20 a week into a savings account earning 1% interest, you’ll have that $1,000 once a year when you need it. The brakes aren’t a concern, nor is that emergency flight you have to take. Plus, you’ll earn a small amount of interest on that money – $5 to $10.

If you just spend that $20 a week on something unnecessary – and that’s what you will spend it on, because almost everyone has $20 worth of fat in their weekly budget – when the emergency comes, you’re putting that $1,000 on a credit card. At that point, you’re now making $80 a month payments on that credit card instead of socking it away. Even worse, you’re paying 20% interest or so on that credit card, meaning that over the course of the year, you’ll have to make two or three extra $80 payments just to cover the interest. And while you’re making those $80 payments, you’re not socking away $20 a week for the next emergency, so when that next one hits, you repeat the cycle. You’re giving away $200 a year to the credit card companies and forgoing some savings account interest as well.

We’re not even talking about the extra risks of relying on credit cards. What happens if the emergency hits and you’ve already got a hefty balance on your cards? What if the bank lowers your credit limit and then suddenly your transmission falls apart?

None of these risks – and countless others – apply if you simply have a cash emergency fund.0

My first mistake was not having a cash emergency fund, of course. This put me up for all kinds of risks, ones that came to a head with my own financial meltdown in early 2006 when I could no longer pay my bills.

The second mistake, tied directly into this mess, was carrying a balance on my credit cards. Credit cards are a great tool, but they’re really only useful if you don’t carry a balance forward from month to month on them. If you start carrying a balance, you’re going to pay dearly for that balance in the form of very, very high interest rates.

Add the two together and you’re running on pure borrowed time, hoping that you don’t ever have more than one or two emergencies at once. Because when that happens, you’re going to find yourself in a bad place, with damaged credit, banks harassing you for their money, and a big helping of added stress in your life.

How can you avoid this trap?

The answers are really found in the mistakes I mentioned above.

First, don’t carry a credit card balance. I think credit cards are a fine tool to have if you can use them responsibly, and responsible credit card use means never carrying a balance. How do you do that? Never put anything on that card that you don’t have the money in your checking or savings account to cover.

Second, start building a cash emergency fund. The easiest way to do that is to set up an automatic savings plan. Open a savings account at a particular bank of your choice, then set up an automatic transfer from your checking account to that savings account. $20 a week is a healthy place to start because after a year, you’ll have $1,040 in your account (plus some more thanks to interest). Use that cash when something unexpected gobsmacks you.

The biggest thing, though, is to recognize that emergencies happen – and they happen more often than most people think. Our minds do a fantastic job of making our crazy disorderly lives seem pleasant and ordered. The biggest crisis in the world seems like nothing more than a speed bump after a little bit of time. Allowing yourself to be comforted by this and thus using that comfort as a reason not to build an emergency fund is one of the biggest personal finance mistakes that people make.

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36 thoughts on “Ten Big Mistakes #8: Credit Card as Emergency Fund

  1. Vicky says:

    Well.

    This one hits home. I’ve been using credit cards as emergency money for years. I usually spend $3-4K a year on credit cards, and the whole year paying it off, always playing catch up.

    I had actually just had all them down to a zero balance… but then I had to fumigate my house for termites and my dog broke his toe and my uncle died and … well…

    Back to the credit cards…. It seems when I just get them all paid off and TRY to build the emergency fund, something comes up where I end up HAVING to use them again. It’s a frustrating cycle I’m not sure how to break.

  2. marta says:

    @Vicky,

    if you really can’t put money aside for the emergency fund, perhaps it’d be better to make smaller payments on the CC (if you aren’t making minimum payments, that is) and save the extra for the EF. Yes, you’ll be paying more in interest. But if you can’t really break this cycle…

    Otherwise, I’d try hard to save a bit every week/month — you can pay yourself first, automate the transfer of a certain amount into savings, etc. It doesn’t have to be $1000 at once! Can you save $50? $ 100? Start *somewhere*.

  3. Brittany says:

    Vicky–start building the emergency fund BEFORE you get them all paid off. Get that $20 deducted from your paycheck into a savings account FIRST, then pay off the credit card bills aggressively. It seems counter-intuitive to have money in savings when you’re playing 20% interest, but doing so will have you 20% interest in the future when the next something happens. It’s the only way to break the cycle without a long streak of good luck.

    Solid advice, Trent. The only thing I’d add is make sure the “emergency” you’re pulling from your emergency fund for is actually an emergency and not just a want or opportunity.

  4. chacha1 says:

    I switched to “cash basis” a few years ago, meaning I use my debit card for 99% of purchases and my credit card only for travel bookings, vet bills, and car repairs.

    I don’t consider any of those categories to be “emergencies,” though. Car maintenance and pet health care are recurring, predictable expenses, and travel has always been optional.

    I send payment in full to the credit card as soon as I use it – easy since I have electronic bill pay. IF I choose to use the card for something that’s a pure “want,” I have to add payment in full into my next pay period’s budget. Since I already have a line item for debt repayment and not much wiggle room, those “wants” have to pass a serious test.

    I also have automatic transfer of $50 per pay period from checking to savings. I am letting this build up with the goal of having six months’ fixed expenses on hand.

    I can attest that – after an adjustment period – this has been a remarkably stress-free way to handle funding for expenses that aren’t fixed.

    The real keys are to keep my paws off my savings, and my eye on my budget.

  5. Ben P says:

    I’m actually just in the process of recovering from that sort of thing and it’s made me get a little more serious about savings.

    I’m in my 20′s and finished grad school only last year. My only major debt is student loan debt. I do make a decent income but have very little savings.

    Someone recently hit my car (which I owned in full) and fled the scene. (It was parked at the time). It was totaled.

    I did own my vehicle in full and I had full coverage insurance. However, depreciation caught me by suprise to a certain extent. The settlement was a fair bit less than a replacement vehicle would cost.

    Rather than going into debt for a car loan too I decided to by a late model used car for what I had on hand. However, doing so has largely wiped out my savings and it leaves me in the relatively uncomfortable position of not having much of a cushion.

    That’s made me think much more seriously about saving regularly and attempting to actually account for depreciation before I have to buy another car 10 or so years down the road. (hopefully).

  6. Angie says:

    My hubby and I are working to pay down credit card debt and getting an emergency fund. But, he lost his job and took one making less money. Our savings dwindled down to only a couple hundred dollars. And, lo and behold, his 1997 F150 had the brakes go out completely. They locked up so bad and put deep grooves in the driveway trying to move the truck. Unfortunately, $800 had to go on credit cards. We hated to do it, but didn’t see another choice! Hopefully we can buckle down and build the savings back up before something happens again! This emergency really made us realize how far we’ve fallen since he lost his job. I can’t wait until we’re out of this hole. One step at a time!

  7. Very sage advice!

  8. asithi says:

    You might want to consider taking on a part-time job temporarily to build up your emergency fund. I did that once where I worked on Saturday shift at the local motel and put all that money into a savings account. After 4 months, I had enough and quit the job. It is not so bad to spend that extra day a week working if you know there is an end date.

  9. KP says:

    It’s refreshing to see you advocate a cash-based emergency fund. Planning ahead definitely saves you money when unexpected expenses arise.

  10. Charles says:

    Also, some basic car repair skills can help with situations like this. Brakes, for instance are not that complicated to maintain and repair (despite the appeals to your safety that the shops will make.) The good thing about learning how to repair brakes is that for most cars they are very similar. The older they are, generally the simpler they are to fix. Parts for a 1997 Ford Truck can be had at most auto stores, too.

    So, basically you would be looking at buying the parts and a few hours on a Saturday morning. This is typically less than half of what a shop would charge.

    I had a similar horrifying experience once, so I can relate. I was driving my 65 mustang on I-75 and when I took the exit, my brake pedal went all the way to the floor. Luckily, it was a stick shift and there was no traffic, so I was able to safely come to a stop. I replaced all of the cylinders (and other parts) on that car and learned a lot in the process. I can promise you that a home repair job, if you take your time, will be as good or better than a job at your local brakes-R-us, where they try to rush them through.

    And for those of you that will go on about the cost of time vs. money, sometimes it is fun to get your hands dirty and try something else. I know a neurosurgeon who mows his own grass. Go figure.

  11. moom says:

    I do use credit cards for emergencies but only carry a balance on them very rarely, for example when moving countries (yes I’ve done that quite often). The balances get paid off quite fast. And we have plenty of savings and other sources of cheaper loans to pay off the credit cards. So this really depends on how disciplined you are and how much money you have.

  12. Most Americans use the CC as a emergency fund. big mistake.

  13. Paul says:

    I’ve been working on an emergency fund monthly now for a while, hoping to contribute more when my CC debt is gone (scheduled for about 1 year from now). But will I ever be able to take that emergency money and spend it? In retirement perhaps? I’d hate to think that I worked for money I’m never going to use.

  14. I like the way you broke down building an emergency fund to just $20 a week. I would agree that just about anyone can find that extra $20 in their budget.

    Murphy always shows up. Dave Ramsey mentions this quite a bit on his radio show. I recently looked up Murpy’s law. According to Wikipedia Murphy, or Murphy’s Law is an adage or epigram that is typically stated as: “Anything that can go wrong, will go wrong”.

    So, it’s obvious that everyone will experience financial emergencies. People just have to be prepared for them by having the savings on-hand.

  15. lmoot says:

    I don’t use my credit card as my only source of an emergency, but I keep all but about $100-$200 cash in checking, the rest in savings, so If I were in an emergency and couldn’t access my bank’s ATM I would just use my CC and pay it off in full.

    I also like the idea of having a one month float so that I may be able to make it up with my paychecks without even having to tap into my savings. I also like the %1 cash back so I use my CC for everything unless there’s a charge to use it or it’s not accepted. If I were able to pay my mortgage with a CC, I would!

  16. Leah says:

    couldn’t agree more! I remember when I got my first cavity a few years back (my one & only) — I was griping to my mom about having to pay $100 to get it filled. And she says “well, that’s what you have savings for, right?” Too true. She taught me to always have a hefty savings account. When I first started banking, I also pretended (in my checkbook register) like $100 of my bank account didn’t exist so that I would always have a cushion against an out-of-the-blue expense. These two things have saved my butt more than I care to think about.

    Like #11, lmoot, I do put these expenses on the credit card. And then I pay them off at the end of the month, and often with the paycheck that just came in. So it is fine to put these expenses on credit card . . . as long as you make sure you can pay them off.

  17. Kerry D. says:

    This used to be us entirely, and thankfully we are planning better now.

    However, we always seems to have more emergencies than we can save for, (June $1200 daughter’s oral surgery not covered by insurance, July $1400 car repair after $700 new tires the month before, etc.) So… although we cleared the credit cards with a refinance, and had an emergency fund, it is consistently slipping downward and I am truly worried about slipping back.

  18. The hardest thing to do for me was to build my emergency fund. It took me so long to get out of debt, I just couldn’t believe that I was supposed to have “extra” money.

    Regardless, I finally did it–and the sense of security it provides is immeasurable.

    And of course, it is a cash emergency fund

  19. Vikas Kshemakalyani says:

    I liked the article very much. It is wrong to carry a credit card with outstanding balance due to the highest rate of interest. The suggestions given in the article are interesting. It is the duty of the govt.to keep a curb on all the banks which are issuing credit cards in respect of financial qualification of the account holder taking into account his monthly earninigs.

  20. Systemizer says:

    “This put me up for all kinds of risks, ones that came to a head with my own financial meltdown in early 2006 when I could no longer pay my bills.”

    Your debt recovery story is a mystery: amount owing, repayment schedule, source of funds, occupation, etc.

    It’s not unlike Lost.

  21. marta says:

    @15: It is not that much of a mystery, though. I recall a few posts about the issue… I think he owed about 20K on CC debt plus student loans, and he did raid his retirement funds to pay down debt on top of some money he got from selling Stuff.

    Lost, on the other hand…

  22. Leah says:

    to #10, Paul: you will spend your emergency fund money . . . when you have an emergency. And then you’ll save back up. The money is there to keep you from going into debt. And, realistically, unless we schedule our own death, we’re going to die with some money left unspent. Is it really a big deal to save up a couple thousand in the bank to save you just as much in interest payments on the credit card? I’d much rather pay myself back than be paying extra money to some company.

    to #13, Kerry: In some personal finance circles, things like new tires, car maintenance, and braces on the kids aren’t considered emergencies. Those are all plannable things. If you own a car, some say, you should set aside money in a separate account purely to pay for issues that arise with the car. Emergencies are things like “crap, I have to pay my insurance deductible because a wind storm blew a huge branch onto my car,” or “oh, no, kid to the ER because of a sports injury.” I save all my money in one savings account . . . but if I had problems with having enough emergency fund, I would probably do some break-out accounts to help out and encourage me to save more. For you, it might be worth it to take another look at cash flow versus expenses and figure out how to make the gap bigger so that you can be putting more into savings.

  23. Elise says:

    I started keeping about $1,000 in “under the mattress money” after going through Hurricane Hugo in 1989, and discovered that any stores that were open (it took a few weeks) wouldn’t/couldn’t take my debit card. It dawned on me that my bank may not have any electricity, either, and I wanted to make sure that I had enough money to pay my rent, make a car payment, and have money for food for one month. I wasn’t earning much money at the time, as I was an architectural intern and was earning slave wages, but if I could forego one pizza a week, I would, and I slowly built up that money, even though I was paying off credit cards, too. I have since increased my $1,000 emergency fund to almost $5,000, because I live alone and I bought a small–but nice–house (something that is more expensive than I ever thought it would be, and I would like to do more work on it myself, but I am disbled). I have had some accidents that weren’t my fault, and I sued and got some SMALL settlements (even though my injuries were not at all related to the accidents, I got less money than I deserved because I had “pre-existing conditions” [sarcasm]. I used that money to pay off credit cards, but I still saved some. I keep a couple of hundred dollars in my house so I can’t access much of it, I keep most in my savings account, and I keep about $1,000 in my safe deposit box–although you’re not supposed to keep cash in one–because it makes it harder for me to get to it. I realize that I’m not earning interest on some of my money, but I’ve also got some cash that no one knows about, too. Any “windfall” money at this point goes towards my ONE credit card that has a balance. Back in February when all the credit card laws changed, I lost most of my credit cards because I didn’t use them, and the credit limit on my main card was DRASTICALLY reduced. I went from having almost $50,000 in available credit to about $400 in one week. I’m working on paying off the credit card with the balance (10.99% APR–could be worse), as I feel I have enough “emergency money” now. I set my computer to pay off the entire balance of my store cards automatically (use them for two small purchases a year so you won’t lose the cards). This is a great way to keep the credit card(s) active and to make sure that the entire balance is paid, all without your having to think about it. As an example, since I have to buy medicine on a regular basis, I set my Target card to do this. I also get a coupon for a day of 10% off ALL items after I fill 10 new prescriptions, so I save even more money! Setting your computer to make automatic payments is one of the smartest things you can do–it’s on par with having your bank/credit union making automatic savings account payments.

    Not all emergency money is CASH; my frequent flyer miles are high enough for two round-trip tickets to anywhere in the US (but sadly, not Hawaii!). My life insurance policies also have cash value, and I have used that source to get the down payment for my house, BUT I paid it back ASAP. It was the cash value of those policies that allowed me to buy a house. If your funeral is pre-paid (another way to save money, as inflation WILL happen, and it will save your family from making difficult decisions–and possibly some fighting–when you can arrange it so they will only be in mourning), and you can’t pay off the money you borrowed from your WHOLE life insurance (not TERM), at least make ALL of the interest payments. The cash value in relation to the policy’s value is not very high, so it’s not a source for much money, but it IS important to, at a MINIMUM, make the interest payments, especially if you have a family that will really need the money. Funeral homes prey on grief, and if you leave a bunch of money to be used at will, the funeral home will know how to get every possible penny out of your loved ones when your time comes. I’m all for pre-paying for your funeral; many people are uncomfortable talking about this subject, but since I don’t know of anyone walking around who is immortal (aside from a few nasty little dogs), you might as well plan for what YOU want, and prevent a family feud. A visit to a lawyer who specializes in estates is worthwhile while you are on that topic, too.

    I have a fixed income that has not gone up significantly in 15 years. I don’t know how anyone can live on SSDI ALONE, but (I know this is off-topic) I have a private disability policy that I paid for with post-taxed dollars. The odds are much more favorable that you will be disabled vs. dead during your working lifetime, so a disability policy is a MUST in my book (and it could keep you out of some MONSTER credit card debt). I NEVER thought I would need my policy at age 34, but I did, and I was awfully glad I had it.

    Hint–if you can POSSIBLY join a credit union, DO IT! They are much more helpful than banks, they are cheaper, they get to know you personally, and they will go over your finances with you if you ask. I got my mortgage reduced from a fixed 6.25% to an APR of 3.1% simply because the person at the credit union knew me, knew how their APR rules worked, and what my house was costing me per month. Credit unions have a lot of great limits on how high an APR can go, how often they can raise the rate, and how much they can raise the rate, so it’s not like an APR loan from a standard bank. Ask your parents, your spouse, or your employer if you qualify for a credit union. My mother was a member of a major one once since my first year in college, but she didn’t tell me I could join until 14 years later–she just “forgot”. Be proactive and ASK!

    I’m almost 50 now, and when I look at my ability to have “emergency money”, a lot of it came from good financial planning when I was in my mid-20′s. Whether it was pre-paying for my funeral, having some income that is not taxable, or getting a wake-up call from a natural disaster, I became DETERMINED to have some cash on hand (it also helps to learn how to bargain). Because of this planning, I was able to get gutter guards on my house (I paid with my VISA debit card after a transfer from my savings account, and didn’t pay until I was satisfied with the job), as I have NO business climbing up a ladder since I have no balance, a my neighbor who had the big ladder moved. I don’t want my downspouts to clog with leaves and ruin my roof, so I weighed the cost of buying a ladder, hiring someone to clean my gutters about four times a year, plus at least one hospital stay and post-accident care that would come out of my pocket (health insurance doesn’t cover everything, and I have no family or friends who could take three weeks off to help me) against the one-time cost of the the guards on my gutters (and I got the company to throw in pressure-washing my house and hooking up my rainwater barrel as part of the deal, and got a warranty for as long as the guards are on the house), and I think I did a smart investment. The cost of the guards alone would be equal to an ER visit, and I’m not including a day or two in the hospital If necessary. If nothing else, what I did will add value to my house when it comes time for it to be sold. I could only do this because I had been saving money for quite a while.

    I shop at Aldi quite a bit (you can find some AMAZING deals there, like a pressure washer for $50 (I have saved so much money by not having a professional clean my house for me!). What I like best about them is their sign, which is something we should all live by: “Cash or debit cards ONLY–no credit cards”.

    I am SO glad that I listened to a friend when I was right out of college who was a little bit older and little bit wiser than I was about money, and what I should be doing with mine. I learned how to tell the difference between “need” and “want”, and if all else fails, I have known people who actually put their credit cards in a block of ice, so by the time it thaws (you can’t microwave or boil it, as both will ruin the card), you’ll know the difference between “need” and “want”. I’m not a nun living in shack with bare walls–I just keep my eyes out for bargains (I got my Samsung 52″ HDTV when Circuit City went out of business–their bad luck was my good fortune), and I do things like closing off the bedrooms when I turn on the heat or (rarely) the A/C. I made sure my house had shade before I bought it, and I can endure a little sweat. My car is over 20 years old, but I try to carpool as often as possible, and I walk to stores when I can. Take the city buses as often as possible, if you have them. I had a long conversation with my neighbor who finally got a job after two years; he’s deeply in debt, but won’t vanpool because he wants to “be by himself”. I suggested an iPod to drown out any chattering, and he said he couldn’t do that because “the women in the van might be talking about me”. I’m just going to let him pay an extra $500/month just for gas and parking in the city (he hasn’t even figured the costs of new tires, oil changes, and other maintenance on his giant truck, but they must be worth it to him.) I spent a year abroad while in college, and I LOVED taking the trains and buses and walking a bit–the stress level was so much less! I actually HATED having to drive when I got back to the USA, and took the bus as often as I could. I’m far from perfect, I still have to finish paying off my balance on the one credit card that I used for some “want” items, but I am making good headway on it and paying much more than the minimum. I don’t think I will ever be able to get a six month “safety net”, but I think that I’m doing the best that *I* can.

  24. Belinda says:

    Very interesting. I was raised being taught that credit cards were to be used exclusively for emergencies only. That worked well for my parents, who carried very little debt and paid off what debts they did have in a timely manner. I think there are a couple of problems with your premise here.

    “Even worse, you’re paying 20% interest or so on that credit card”

    I’d say that person has some pretty bad credit. With a decent credit score, you can secure a line of credit for much less than that. Mine is currently 5%.

    “almost everyone has $20 worth of fat in their weekly budget”

    I assure you that there are an awful lot of people out there who certainly do not have $20/week of “fat”. They are living paycheck to paycheck. Anything they do happen to have extra is going into retirement savings, 401(k), etc. Not just lying around, burning a hole in their pocket, or being spent on lattes.

    “Never put anything on that card that you don’t have the money in your checking or savings account to cover”.

    That’s a debit card, not a credit card. Why use a credit card at all if you are pulling money to pay for it directly from your checking/savings account? That doesn’t make any sense to me.

    My emergency fund is in place to cover 3 months worth of living expenses if I were to lose my job, a reality in this economy. I have a line item in my budget for car mainentance/repair that is accounted for monthly. Ditto for medical, to cover things like doctor co-pays, dentist, etc. But if something truly major happened that I didn’t have cash for, I would use my credit card rather than take money from my emergency fund. I can see that the minute I did, I would lose my job, and then where would I be? Sorry, but I’m going to have to disagree this time.

  25. valleycat1 says:

    The advantage of having $ routinely & automatically put into your emergency savings is that, when you do have an emergency & do have to spend the account down, you’re automatically replenishing it beginning the following month. Yes, the balance will drop temporarily, but you’ve already got a plan in place to build it back. What’s more, assuming you do have the cash set aside when you die (#10, Paul) – that may be what helps your family pay funeral expenses – because although each of us know we (& our family members) will die, I know few people who have money set aside for that purpose. Locally we have a LOT of fund raisers going on all the time for families who can’t afford a funeral.

  26. TODHD says:

    This is how most people get into major credit card debt by using their credit cards to get them out of more debt

  27. ABQBrent says:

    I don’t look at credit cards the way most people do I guess. I’m comfortable having credit cards as part of my emergency strategy. The first and last part. Small immediate emergencies go on the card, it gets paid at the end of the month. Which smooths out things because I have at least a paycheck to handle it. Also for the last resort of emergencies. If I drain all my cash, and my 4-month emergency fund, and I still need more. I would put it on the card. Its not inherently bad, By using credit cards as the bottom of my emergency fund I effectively have a 14 month emergency fund. Sure my emergency fund will continue to grow, but I’d like to know in the mean time that I can handle anything.

  28. K.sol says:

    I have to say, I did the opposite on this. When I was carrying credit card balances, I chose to pay them down aggressively rather than build an emergency fund, and use them as the emergency fund so that I could reduce the interest in a hurry. The key, though, is that I’m a frugal person (long story as to how I got the debt)and I was putting pretty much all disposable income toward credit card debt and not running them back up.

    Different strategies sometimes work. The danger, though, is that it’s easier to spend on a credit card than with cash, and an “emergency” can be on a sliding scale, depending on whether you’re taking it out of savings or putting it on a card.

  29. Tracy says:

    This is by far my favorite of the ’10 big mistakes’ columns, because it really is the easiest trap to fall into.

    It really is hard for me to pull money out of savings in an emergency, even when that’s what the money is for. In the past I’ve actually been tempted to carry a balance on a CC and try to aggressively pay it down (even though it’s a really quick way to accidentally start building CC debt back up)

  30. Nicole says:

    The key to using your credit card as an emergency fund is that you can still pay it off by saving up during the float you get between when you use the credit card and when the payment is due.

    I’m like #19, ABQBrent. I put almost everything on the credit card if I can, little and big emergencies. Then I pay it off. I do keep a month in easy access savings and have places I could get more money if I needed it (stocks, checks from the credit card company, etc.).

  31. K.C. says:

    I’m in the camp with Chacah 1 (#4) and Leah (#17). Car repair and maintenance is not what I call an emergency. I budget for car repair and maintenance monthly. An emergency for me would be an interruption in income due to unemployment, natural disaster, illness, etc. That’s what the six month’s living expenses in my emergency fund is for. But I agree with Trent that having extra cash, no matter what you call it, to deal with expenses that exceed monthly cash flow is better than using the card.

  32. Very good post. The first line is my favorite. Sounds like a good opening sentence for a novel.

    I really like asithi’s idea. How difficult it sometimes is to get going but she has a great jump start plan.

  33. Dawn says:

    This is a very good idea and definitely useful – if you’re making enough to save.

    What happens if you’re not? Any advice for those of us who are literally living paycheck to paycheck? I tried putting money away – $5-10 per month, when I could afford it after paying the bills. That’s with my student loans deferred, by the way – without the deferment I would be homeless. I currently have $40 in my savings account from a year of saving, and it’s all coming out now to pay for food and an overdraft fee on my checking account.

    I’m unemployed and have no active credit cards (I long ago froze them and started payment plans to get rid of the debt entirely). Any suggestions?

  34. Systemizer says:

    Thank you Marta.

    So, “I could no longer pay my bills” means funds were available but they needed to be moved from an investment account to a deposit account.

    Some meltdown.

  35. Mattie says:

    There couldn’t have been that much in the retirement/investment account ! I don’t think liquidating that investment account completely cleared and took away the debt besides his “meltdown” was his own perception of the situation he had created. this would be an apples & oranges comparison not an apple to apple.

  36. Ralph says:

    Thanks for sharing these tips on responsible credit card use. With this information I am sure some people will be able to better control their spending.

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