I am writing this after learning of two incidents where credit card payments for emergencies resulted in more expenses (interest payment). What is discussed is quite basic and should sound trivial for experienced money managers. You could then share the article with someone younger.
Let start by appeasing children from the reward point gang that this is not an anti-credit card discussion. At the cost of stating the obvious, there is nothing wrong with using a credit card as often as possible (or not at all) as long as the payment is made in full before the due date. It can be used for emergencies, too, but some precautions are necessary as they can be tricky and unpredictable.
By emergencies, we shall refer to an unexpected big expenditure. I cannot reveal details of the two incidents mentioned above, but we can learn from them:
- An emergency can result in a sequence of unexpected events (good or bad) could mean we either forget or become unable to pay the credit bills on time. For, e.g. several family members becoming hospitalised. The main money manager of the house becoming ill, and others have no idea about the credit card usage details, due date or how to pay.
- An emergency can also clean out most of our liquid investments. So even if we remember to pay the card bills, we may not have the money to do so.
Points to consider if you wish to use a credit card for an emergency:
- Please make sure you inform someone else in the family about it immediately, along with the due date. They can remind you about it or arrange to pay for it depending on the circumstances.
- Never use a credit card for any purchase – planned or emergency that you cannot immediately payback – that is at least within two to three weeks of the purchase.
- Particularly for emergencies, it may be a good idea to pay that alone asap without waiting for the due date like other regular payments. Higher the sudden expenditure, sooner to arrange payment for it.
- If you can pay for the emergency with other means like a debit card, bank withdrawal, liquid fund withdrawal, etc., it may be better to prefer that. It is not wise to get into debt if your life has suddenly changed (even if it is temporary). Use a credit card as a last resort option to handle the emergency if other means are inaccessible.
- If you are a regular credit card, you may not have enough credit limit left when an emergency strikes. So you can consider using two cards – one for regular use and one for occasional use and emergencies.
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