Credit Cards for Emergencies Revisited
January 10th, 2008 by Ana
Well, Madison and my Great Credit Card Debate has inspired further commentary out in the blogopshere, and yesterday Shana at Smart Easy Money brought up the “What about an emergency?” scenario for keeping a credit card. Longtime readers here (all 15 of you LOL) will remember this very question is what kicked off my credit card debate with Patrick from Cash Money Life. Here’s the run-down:
It all started with a T-Shirt I saw on campus that said “I know the credit card is for emergencies…but she was HOT!” I went off on that mentality, and that was the first time I said I don’t think anyone should have a credit card. Well Patrick called me out on that statement and we went back and forth a few times before agreeing to disagree. Although I do love his analogy between credit cards and guns.
This time around, the subject of what to do in an emergency didn’t come up between Madison and me. But since Shana brought it up I will recap what I left in her comments:
As I said, I have nothing against the actual pieces of plastic, but let’s face it, the companies behind the credit cards are NOT your friends. I have much more important things to do in my life than to vigilantly watch over a credit card company, then continuously call their version of “customer service” to get mistakes straightened out.
As for emergencies, I have an emergency fund of over $1600 currently, and once the truck note is paid off this spring I will be upping that to $11,000. That should cover just about everything, including replacing my central-heat-air unit. (knock on wood)
I still whole-heartedly advocate having a cash emergency fund. Since I first set up the baby emergency fund last January I have had my heat fixed with cash, completely replaced the brakes on my car in May, and most recently dealt with more car repairs last month. With the tow charge, I literally paid cash: two $20 bills, one $10 bill, and one $5 bill. Paying for the parts and labor was just a matter of whipping out my debit card and completely worry-free for me. It’s amazing how an “emergency” is more like an annoyance when you have the money to pay it.
So, as y’all can see the “What about having a credit for an emergency?” argument just doesn’t hold water when you can achieve the same result with cash. And, to turn the credit card rewards argument on its ear: I earn interest on my emergency fund! How many folks who keep a credit card just for emergencies earn interest on that account?
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January 10th, 2008 at 4:08 pm
My guess is that people who are relying on credit cards for emergencies are those that don’t have a $1000 emergency fund, just due to lack of planning. When was the last time you had a “real” emergency that was over $1000? I don’t think I’ve ever had one. And once you get debt free and get a big emergency fund saved up, then it really won’t be a problem.
January 10th, 2008 at 4:29 pm
green3, the last time I had an emergency that cost more than $1000 was January 27th, 2007 when my heat broke! That was the first test of the emergency fund, and ran me $1140 by the time it was finally fixed and warm in the house. After that I bumped it up a few hundred. I can’t wait until we get it up to five figures!
January 10th, 2008 at 6:41 pm
We just went through an emergency with a dental problem that wiped out our $1,000 emergency fund and more (since the tooth broke in half [even though the dentist said it wasn’t going to happen 6 weeks ago] it had to get fixed now. We are rebuilding the e-fund right now. I run all our purchases through a rewards credit card. So I personally enjoy the benefits of both - rewards, and interest on my emergency fund. We are working on getting our baseline emergency fund to $2,000 and then a fully funded one at $10,000. Since I spend way more money with cash but have to account for cc purchases - this method works for us.
January 10th, 2008 at 7:10 pm
Thanks for the mention.
I definitely agree that when you have a well-funded emergency fund, “emergencies” are a lot more like annoyances.
My point, though, was how would someone deal with an emergency that is greater than their emergency fund (regardless of the fund size)? My mother once had to unexpectedly replace her water heater. If she hadn’t had the cash on hand (or a credit card), she wouldn’t have had hot water for a while…in winter. It’s not possible to predict what a future emergency might be or what it might cost — especially for homeowners. Having a credit card doesn’t mean you have to use it regularly, or even at all.
I’ll always have at least one card, but that’s also because I travel and I like the security and options it gives me in case something really goes wrong (and I’ve had things on the road go wrong before).
January 10th, 2008 at 8:54 pm
Shana, it’s funny you mention the water heater again: mine went out in the spring of 05 (it tried to imitate a geyser) back when I did not have a credit card. Since I called a local established plumbing company I was able to make payment arrangements with them over a four week period. Still no credit card needed
January 11th, 2008 at 4:56 am
I read the original exchange on Patrick’s blog and it was very interesting. I think that credit card companies play on the “Emergency” theme in order to encourage us to keep a credit card available. They know that our resolve is weak and that eventually we will start using it for non essential emergencies. Does this mean that credit cards are bad? No, just that we need to be clear about the reasons we need one!
January 11th, 2008 at 10:05 am
Hi Ana,
I agree with Make Friends, Earn Money, if you are clear why you need a credit card, and use it properly, there is no problem with having one.
Thanks for the mention!
January 11th, 2008 at 10:57 am
Unfortunately for me and my husband, nearly all of our emergencies in the last 6 years have been in the $2000 - $4000 range. That is the main reason we are up to our ears in credit card debt right now. And until just recently, we didn’t usually maintain our emergency fund, choosing instead to throw every available dollar at debt. Now though, we do have $1000 in the savings account which I will not touch except in an emergency. And, although I totally agree with your assessment of credit cards and can’t wait to be completely free of them, I can’t just cut them up, based on my past experiences. Even with 6 months of living expenses saved (can’t wait until that day!) I think I would still probably keep at least one. We’ve been burned so often in the past…
January 12th, 2008 at 8:07 am
Ah, Karen brings up an important point…for some, the credit card IS the emergency.
My occasional emergencies can ballpark up to about $1500 (dental impant, car repair bill), and I have had enough to pay cash each time. I even let the Benjamins negotiate some discounts. (Not possible with a CC.)
My big emergency was a 14 month period of unemployment and underemployment. Of course I didn’t know it was going to last that long. Right away I networked, sought jobs diligently, worked chump jobs for cashflow, minimized expenses, and I made it through. That would have been a bigger emergency than even a six month expenses emergency fund, but I would still handle it the exact same way if I were in that situation again. No credit cards! –You have no idea of your future income and ability to handle whatever balance/payments from living on a credit card for a year! Might as well shackle yourself with some deadweight…because even if you get a good income again, you’re saddled with debt and can’t save/invest/make progress until that is paid off.
There’s no emergency I can’t handle without my cash, savings, or debit card. No CC needed.
January 12th, 2008 at 10:11 am
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