Your car breaks down miles from home. A family member is rushed to the emergency room. You lose your job. Or as often happens, everything strikes at once. Should you use a credit card to get through an emergency?
As with most financial decisions, the answer depends on why you are using credit, if you have considered other options, and how you can responsibly expect to pay down your debt as quickly as possible. Credit cards can sometimes be a lifesaver. In other situations, they can make your problems worse. Here's help knowing when to pull out a credit card in an emergency, and when to find some other solution.
When to use emergency credit cards
Using a credit card may be a wise decision in these situations:
- You're using the credit card as a payment tool. Credit cards are convenient, especially when traveling. If you can pay off the expense during the next payment cycle, there should be no harm done.
- You have a plan. If you expect to sell something, find employment, or take other actions to improve your situation, using a credit card may help you get through a short-term emergency.
- You have no other good options. If you're stranded by the side of the road with a car that doesn't run, or your home heating system quits in December, and you don't have an emergency fund, you shouldn't feel guilty about using a credit card.
When not to use your credit card
Using a credit card might make things worse if any of these are true:
- You buy things you don't need and cannot afford. It's difficult to judge other people's expenditures, but one way to tell if it's an emergency is to ask yourself what you would do if you couldn't use a credit card. If you could do fine without, perhaps it's not an emergency after all.
- You use credit cards as a substitute for creating an emergency fund. Having some cash stashed away for emergencies is one of the first things you should do to improve your financial situation and peace of mind. While credit cards can supplement your emergency fund, they should not replace it.
- You know upfront that you can't repay the debt. When you use a credit card, you are promising to pay the amount that the bank pays to the merchant on your behalf. Never make a charge you don't intend to pay for.
- You could pay lower interest and fees elsewhere. Some medical facilities allow you to make payments interest free for a period of time, for example. If you do use a credit card, choose one with the lowest interest rate and fees available to you.
How to help someone else in an emergency
When someone calls you with an emergency, it's easy to pull out your card. It's also hazardous if you're not careful.
Many people find out the hard way that if they give someone their credit card, or the numbers from a credit card, they are giving indefinite permission to that person to use the card. If you hand over your card, for example, and tell a friend to get $20 worth of gas, and they take your card to Las Vegas for the weekend, you're liable for the balance. Likewise, if your daughter needs your credit card before the auto repair shop will do $80 worth of work on her car, and it ends up costing $800, you may have difficulty disputing the charge.
In even worse scenarios, people have given credit card numbers to scamsters who weren't the relatives or friends they purported to be at all. Never give your credit card over the phone or by email or text unless you have some way of verifying the other person's identity.
Whenever possible, give people cash or a check instead of using your credit card if they approach you for emergency help. If you must pay a bill for someone with a credit card, make the payment yourself instead of handing over your card or card numbers, and don't leave it as an open-ended bill. Be aware that some credit card contracts don't even allow you to lend anyone your card.
To help someone on an ongoing basis, such as a partner or child, consider making them an authorized user on your card. They'll be able to use the card, but you are responsible for the balance. You may be able to limit the amount they can charge each month, or you can add them to a card with a lower amount of available credit.
Best credit cards for emergencies
When you're looking for a credit card to use for emergencies, focus on keeping your interest expense and other fees as low as possible, at least long enough for you to pay down your debt.
If you know you have a large emergency expense on the horizon, such as major car repairs, a planned medical procedure, or a new water heater for your home, 0% intro APR credit cards can be a great option. These cards offer an introductory period of 0% APR giving you extra time to pay off your purchase interest free. If you had to make a large purchase with no time to plan, consider a card with a 0% intro APR on balance transfers instead. A balance transfer card offering 0% APR will allow you to transfer an existing credit card balance to that card and pay it off over the course of the introductory period interest free. Just be sure to pay off your balance before the promotional period expires or you'll be responsible for paying the full rate on any existing balances, which could put you in a worse position than you started off in.
On the other hand, no-annual-fee credit cards are a great option to keep on hand for everyday in-case-of-emergency types of situations. If you don't already utilize credit cards, but want to have something in your wallet in case an emergency arises, make sure it's a card without an annual fee. Credit cards with annual fees usually come with great perks, but if you aren't using the card regularly, you'll likely have trouble offsetting the cost of the card. Instead, a no-annual-fee credit card can give you peace of mind, knowing you have something on hand in case you really need it, without the added expense of an annual fee.
>>Related: Best credit cards for medical bills
Bottom line, should you use credit cards for emergencies?
If it's truly an emergency, and you have no better options, use your card and get through whatever emergency you find yourself in. Even in less dire circumstances, using a credit card can help you or someone else through difficult times. If you minimize your interest expenses and fees and make a plan to pay off your debt, using your card can be part of a wise strategy to take control of your finances and soon see better days ahead.