Should You Use Your Credit Card As A Contingency Fund?

Credit cards can come in handy whenever you need them. Whether you’re going for a stroll at the mall or you need to buy something from online merchants, a credit card can be your best friend if you’re looking for the convenience of cashless shopping as well as the secure mode of payment.

Read: How To Build Your Emergency Fund In Your 20s, 30s, And Well Into Your 40s

But while credit cards can be useful in times of joy, is it also advisable that you use it in times of distress?

Credit card contingency funds

Unfortunately, the answer is a big no: it is highly discouraged to use your credit cards whenever you’re in a pinch–whether it is during natural disasters or tight financial corners. Why is that so? Here are the reasons why you should never use your credit card in times of emergency:

Using your credit card as a source of emergency funds is poor financial planning

Whether you like it or not, making your credit card your primary source of emergency funds is a sign of financial mismanagement, and this can negatively affect your entire financial structure. When you start using your credit card for contingency purposes, it can start a catastrophic chain of events that will leave you penniless even without calamities.

Read: Top 5 Reasons Why You Need To Create an Emergency Fund Now

Not all stores accept credit card

Over the past few years, credit cards have become more accessible to Filipinos, especially that application has been much easier. While there are more credit card users now than before, not all stores can accept credit cards as a form of payment yet. If you are going to resort to credit card for your emergency expenses, then you may encounter some snags along the way.

Cash advance is a big no-no

Using credit cards in times of distress can already put your finances at risk. Using your credit card to make a cash advance in these times can cause a bigger blow to your budget.

While a cash advance may come on handy in rare occasions, there are certain limitations and penalties for using such credit card feature. For instance, your account may incur a bigger amount when you because of the separate interest charged by credit cards. As much as possible, avoid it even in times of emergencies.

What if your card carries a balance?

The problem with calamities is that they can strike anytime without further notice, and you can never tell if they will strike at the moment you’ve used up all your credit. For instance, what if severe flooding has occurred and you need to shop using your credit card, only to find out that you’ve already maxed it out and cannot make more purchases until you pay your balance. These cases may be one in a million, but they happen when you least expect them.

Read: (Accumulating Points With Your Credit Cards: Boon Or Bane?)

What should you do instead of making your credit card your source of emergency funds?

Emergencies happen, and it pays to be financially prepared for them. Fortunately, there are far better things you can do than using a credit card as some sort of financial fallback.

  1. Acknowledge that emergencies happen, and way more often than what you think. The human mind is an interesting device; it can make a person believe that the problems encountered are merely speed bumps as opposed to huge setbacks with dire consequences. If you wire your brain to see that emergencies happen often and they have severe effects to your finances, you can start thinking about contingencies and make realistic decisions.
  2. Start stockpiling your emergency cash fund. People say that it’s important to have an emergency fund, and why not? Aside from being usable in times of calamities, emergency funds also come in handy in other situations like retrenchment, sickness in family, and other situations that can have a direct blow to your financial health. Also, make sure that your emergency fund is in cash so you can easily access your money.
  3. Pay your credit card bills on time and in full. While it is not advisable to rely on credit cards as your source of emergency funds, plastic may also be useful in certain scenarios. It will be a shame if your emergency fund goes dry and you’re about to use your credit card, only to realize that you’ve maxed it out already. Just to be on the safe side, practice due diligence in paying your credit card  You’ll never know when you might need it.