Credit Cards for Emergencies? NO!
September 11th, 2007 by Ana
One of the arguments for keeping credit cards (that I hear often) is for use in emergencies. “What will you do if you have an emergency? You’ll need a credit card then!” Well, yesterday in hall of the science building I saw a T-shirt that sums up perfectly why most people SHOULDN’T keep a credit card “for emergencies.” The shirt said:
“I know the CREDIT CARD is for emergencies, but she was HOT!”
It didn’t have a logo, or anything to identify it with any company, which means the 18 or 19 year old male wearing it probably got it in the mall. I’m sure he thought it was just a funny t-shirt, but I also have to wonder just how true that saying is for him?
It might have been funny to me, also…if I didn’t know so many guys who would actually DO that. Between being in college and spending six years in the army, I can rattle off at least twenty names of guys I have known who would do this. This is without even stopping to actually think.
Speaking in sweeping generalizations, single college age and military guys tend to be very impulsive when it comes to dating and money management. That is why they are preferred targets for the credit card companies! This isn’t a conspiracy theory; it’s their business plan. Student credit card accounts have a higher interest rate than even “bad credit” accounts: 17.88% for a student credit card versus 12.81% “for bad credit” credit card according to creditcards.com (rate information is at the bottom right of the information block, you have to scroll down to find it). College students may be smart, but they aren’t yet wise and are often prone to impulsive buying. Just about anything can become an emergency, or a “need.”
Now I’ll admit I am a hardliner on this: I don’t think ANYONE should have credit cards! Cash in the bank makes a perfectly good emergency fund, and that is what I do myself now. Cash makes you stop and think, “Is this really an emergency?” Cash is real money, not some imaginary number they tell you that you can spend. Cash is not nearly as easy to spend as a credit card when you’re three beers into a Friday night and some “hot” girl walks into the bar. Cash is also flashier than a credit card in that same bar if you are intent on impressing a girl. And finally, cash just feels better than a credit limit 
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September 11th, 2007 at 1:50 pm
Ok, I’ll have some fun.
“Speaking in sweeping generalizations, single college age and military guys tend to be very impulsive when it comes to dating and money management.”
I think money management in general is a sufficient statement, but especially when it comes to dating. Or cars, vido game systems, electronics, alcohol, clothing, DVDs, CDs…
“I don’t think ANYONE should have credit cards!”
I would be careful here. Credit cards can be a good way to establish credit history and not everyone has an extra $1000 to buy an emergency airplane ticket or some other high dollar expense. I think *cautious* use of credit cards is legitimate and almost necessary for people who don’t have cash saved.
“Cash is also flashier than a credit card in that same bar if you are intent on impressing a girl.”
Absolutely! Very few people pay in cash, and people take notice when you do!
September 11th, 2007 at 10:48 pm
I’m almost to the point of agreeing with you. My cards are deep inside my freezer at the moment. I haven’t quite gotten to the point of cutting them up, but once I do, I don’t think I’ll be using credit cards again.
I don’t think they’re necessary. After all, what did our parent’s generation do before credit was so easily available? I honestly think the easy availability of credit is going to catch up with the economy at some point. We can’t possibly continue to be a nation this deep in debt without consequences forever.
September 12th, 2007 at 9:05 am
Patrick: LOL yes we have both seen the (lack of) money management skills in the young single military guys! I am beginning to think they should teach debt avoidance and financial management skills in basic training. As for your comment about “*cautious* use of credit cards” I’ll write a whole post on that! (Y’all know how longwinded I can get on that subject…)
Lynnae, as for what our parents’ generation did: they either had cash saved up or they went without. My dad can tell stories about going without because Grandpa was too proud to accept charity and had already used up the cash reserves during a couple of difficult times.
September 14th, 2007 at 4:44 am
[…] t-shirt inspired Ana to write the post, “Credit Cards for Emergencies? No!” In it, Ana made the blanket statement, “I don’t think ANYONE should have credit […]
September 14th, 2007 at 6:15 am
[…] DebtFREE-Revolution says Credit Cards For Emergencies? No! […]
September 14th, 2007 at 3:48 pm
Ana,
Great post about having a credit card just for emergencies. Credit cards always make for a great topic of discussion. Credit cards for emergencies?!!! Boy, how many times have I heard that one? Too many! LOL!
Credit cards…they’re great if you have the money to pay them off when the bill arrives, otherwise, they’re a headache. A friend of mine is like me about credit cards. She told me one time, “If you have to charge on a credit card because you don’t have the money, what makes you think you will have the money when the bill arrives?” She has a very good point.
Hubby and I don’t have credit cards and never will again. We’ve found that we enjoy being debt free and paying cash.
September 14th, 2007 at 10:17 pm
Nancy, I hear ya about not missing the credit cards! I went for years without them after the first time I got burned. I couldn’t even tell you why I let them back into my life after so many years without them. I guess I just got “stupid” again. Never again! (And this time I mean it)
September 16th, 2007 at 8:58 pm
You say “I don’t think ANYONE should have credit cards! “. My reply is that SOME people should not have credit cards. Credit cards do make it easier to get into debt. But people were getting into debt before there were credit cards.
I have credit cards, but NOT for emergency use. And rare is the month that one of them doesn’t have a balance due. But inn over two decades that I’ve used credit cards, I’ve never charged anything I couldn’t pay when the bill came due. And at times I’ve had a balance of several thousand dollars, which I paid in full when the bill came, because I had saved the money before hand.
So why do I have them? Convenience. Plus I get a bit of cash back. Works for me, YMMV.
September 19th, 2007 at 6:21 am
Credit cards are too tempting for those with uninhibited spending patterns. But try renting a car or buying a flight on short notice (usually in times of family emergency)without the plastic? Buying petrol at night? Unheard of. I think adapting to state-of-the-art payment methods should also include training young adults in how to make wise choices about these methods.
I agree with the idea of keeping a nest egg somewhere for when disaster strikes. I keep my $ 500 tucked away just in case. Cash of course.
September 19th, 2007 at 8:55 am
Lou and EMF: I’ve done all those things with a debit card. I’ve rented a car on Christmas Eve with a blizzard on its way after the one bad used truck I’ve ever owned stranded me in small-town Indiana. I’ve never had a problem using a debit card for pay-at-the-pump either, regardless of what time it was. In fact, I had many times more problems using an American Express credit card than using my bank-issued Visa debit card.
September 20th, 2007 at 1:26 pm
[…] Friday afternoon I received a comment on my post about saving a cash reserve to kiss credit cards good-bye by Jason Dean […]
February 26th, 2008 at 9:15 am
An impulsive college student or military person (male or female) wouldn’t be any more responsible with a cash emergency fund than a credit card, if their impulsiveness is out of control.
At least with a cash emergency fund, the damage is finite.
I didn’t have a CC until senior year in college or first year in grad school…can’t remember which. It was really unusual for a college kid to have a CC. The ATM was new back then and my college town was the test market. Imagine that, you could get your cash any time, not just when the bank was open! (Drunk, after bar, out of cash, going out to breakfast, LOL)
Yeah, the 80s. Good times.
March 4th, 2008 at 9:37 am
All of this sounds very good in theory. In practice, debit cards have their own pitfalls. I had actually written a post about this subject before my blog got eaten by a plugin gone wrong. I would like to reconstruct the article sometime today, actually.
My own experience has been that, despite Dave Ramsey’s theories on the subject, my account can be and has been overdrawn by a debit card transaction. You wouldn’t think banks would do this (in my case it was PayPal, but I know someone with a bank account who’s gone through the same thing), but apparently they have changed their rules since 2003. I would prefer that my card be declined if the funds are not there, but that does not always happen.
With my PayPal debit card the damage ends with the overdraft. As soon as I get money back into the account everything is fine and I go on with business as usual. With a bank account they hit you with a NSF fee which is often over thirty dollars. This works like a short-term loan. If you think of the NSF fee as the interest rate on that loan, it gets expensive. I did the math on what would happen if someone overdrafted by two dollars and was charged a $35 NSF fee, treating the fee like an APR, and calculated that the interest rate on that two dollars worked out to an interest rate of over 1700 percent.
The worst credit card APRs I have seen have worked out to be less than 30 percent, just for perspective. Here in Ohio I believe they are capped at about 22 percent, but I don’t have the info right in front of me, so don’t quote me on that.
Now, granted, the actual amounts of interest paid on credit cards versus the NSF fees generated by overdrawn debit cards are often night and day. However, you can delay paying back a credit card in a pinch; you can’t delay paying back the bank when your next paycheck comes in. This gets expensive if you fiddled where you should have faddled and are three hundred dollars in the hole from overdrafts. It’s like getting a three hundred dollar cut in pay.
And it’s all too easy for this to happen even if you are scrupulous about keeping track of your check register, if you don’t know how debit cards are treated in various transactions. The person I mentioned before with the bank account and the debit card problems isn’t the most responsible person with his money (neither am I with mine, I’m just saying), but one day he went to get gas and found out later that the gas station had charged a hold on his card. It was somewhere between seventy and a hundred dollars, I don’t remember exactly now. If he had only paid for his gas he would have been fine, but he didn’t have funds to cover the extra hold and he wound up triggering a NSF transaction.
Gas stations do not advertise when they put holds on debit cards. No business that I know of does. People who are not aware of this policy will find themselves burned in a way they would not have been had they simply written a check.
So while I can see the basic logic of preferring debit cards over credit, and while some of the problem with debit cards comes from people’s tendency to spend impulsively, I can also see that people are protected more by credit card use in basic transactions than they are by debit cards. It should not be that way, but unfortunately it is.
April 4th, 2008 at 6:52 am
Just stop looking after all the hot girls in the bar and just find one that really loves you and doesn’t want to ruin your finances.
May 15th, 2008 at 1:01 am
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