When you borrow money today, you are really robbing your future self of money. The money you will earn a week or a month from now will be used to pay for the debt of the past. And because this mindset causes you to progressively have less money every time you get paid, you will perpetually be in debt. That is the unforgivable sin of credit card debt; it’s a self-perpetuating mindset. Credit cards, which are a de facto form of money, are a financial tool. And how you use that tool determines your personal finance present and future. Unfortunately, people in debt over-rationalize their use of credit cards when they know better, like for emergency use. However, an “emergency” is a relative term. And how do you use a credit card for emergencies?
It is well and good to have a credit card for emergencies, but debt, in general, is a national emergency now.
Before we can discuss how you can use a credit card for emergencies, let’s take a look at the debt emergency in America.
Credit Cards for Emergencies (And the Debt Crisis)
The average American household owes over $145,000 in various debts.
And the average individual owes over $7,000 in credit card debt alone. Americans carried over $416 billion in credit card debt month-to-month as of September 2020.
It’s hard for me to keep track of unemployment figures. At the onset of the pandemic, over 6 million Americans filed for unemployment benefits in one week.
Since then, 700,000 to one million Americans file for unemployment insurance almost every week.
In February 2020, one month before the pandemic became known, the average American salary was $48,700.
I don’t have to tell you that the average American salary has not increased since then; there are no appreciable updates to that salary estimate.
With the state of unemployment, evictions, and business industry disruption, America is in a state of financial emergency.
Over 33% of Americans have used a credit card in a way that will negatively affect their credit score since the pandemic began.
And why would 33% of Americans use a credit card in a way that would hurt their credit scores during a pandemic?
An emergency.
Your financial mindset and the way in which you view credit cards as tools will determine how you use them.
So, do you want to keep a credit card for emergencies?
Well, what is your definition of an emergency?
What is a Financial Emergency?
What is your definition of a financial emergency?
Is it ordering a pizza when you have little food in the house?
Or paying for a cable and internet service upgrade?
Is it a financial emergency if you need to pay for an emergency impulse purchase?
If you want to use a credit card for emergencies, you need to have a strict definition of what a financial emergency is in your life.
And you should only then use this dedicated credit card for emergency use only.
Having no food in your house, imminent eviction, a medical emergency, imminent vehicle repossession, and so on, are financial emergencies.
And even then, if you use a credit card to pay for an emergency, you need to have a responsible mindset about money and personal finance. Otherwise, you will always be dealing with financial emergencies.
You will always be stuck in a quagmire of debt and financial emergencies if you don’t pay your debts, save money, make a budget, and plan for your future.
So, now that we understand all of this, how would you use a credit card for emergencies?
Use the Right Credit Card
If you need to use a credit card for emergencies, dedicate only one credit card for this purpose.
When you have the luxury of five emergency credit cards, then you will always find excuses to use them in emergencies.
The average credit card interest ranges between 14% to 15%. So, only use a credit card with the lowest interest rate.
Your designated credit card should have a credit limit of $300 to $500. You should not have a credit card for emergencies if you are unable to pay off the outstanding balance if you must max it out in an emergency.
Always keep your emergency credit card viable; make sure you pay your balance in the full month to month.
You may also want to use a secured credit card for your dedicated emergency credit card. Unlike an unsecured credit card, you must pay a deposit to activate your credit limit.
So, in a financial emergency, you can max out your secured card since it is your money, not a credit card company. Just pay it back as soon as possible to keep your credit card in good standing.
Credit Cards for Emergencies
If you need a credit card for emergencies, here is a list of credit cards that may be right for you.
However, if you don’t correct your mindset about money, and only see credit cards as a tool for financial independence, then an emergency credit card is just another credit card.
Pay off all your debts.
Start saving money. How much you save isn’t as important as starting the habit. Once you have a little money saved, you will want to save more.
Make a personal budget and stick to it. And update your budget as the state of your finances change.
Make plans for your financial future and strive to realize those plans.
View credit cards, which is money, as a tool to achieve financial independence.
Otherwise, you will always find yourself in a financial emergency.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.