Using a credit card for emergencies…

By | 27th February 2017

Seriously, don't poop in your own lifeboat - use an emergency fund instead of a credit card

There are three areas where you might initially think about using a credit card instead of a debit card. However I’ll show you that there are in fact other options available to you:

1) Hiring a car – many companies require you to have a valid credit card.

One possibility though is to sign up for the company loyalty scheme, that way rentals are charged to the debit card on your profile rather than the hassle of dealing with extra paperwork and deposits at the desk. One of the companies I’ve used in the US has the cars waiting for you with your name above the parking space. Just jump in and show your licence to the car park attendant when leaving – no card hassle at all.

2) Staying in a hotel – most hotels will put a reserve on your card for ‘incidentals’ at a fixed amount per night.

If you are staying somewhere for a couple of weeks, this could mean several thousand are reserved on your card. With a debit card, this locks you out of accessing those funds but having a credit card means it comes from the limit instead.

One option though is that many hotels now accept cash for incidentals on check-out, provided you specifically ask for this. It may mean that some things are locked out without a card.

3) Travel Hacking – there are those that use cards to collect mileage points, and you can indeed build up free flights through usage and bonus offers. Some bloggers I follow have had long trips for minimal costs.

However, the benefits you get will depend on how much you spend on the card, whether companion tickets matter to you, and what special offers are available.

Should you not be spending much that could go on a credit card then this might be of limited benefit unfortunately.

Indeed, one particular flight I was looking at for myself would take over 80 years to build up the mileage points! And when I looked for information, 9 months ahead, no mileage flights were available until you went nearly a year ahead. Even then, the mileage flights were the ‘cheap’ daytime ones instead of the preferred overnight flights.

So you are better off just saving up yourself to take that trip you want, rather than relying on restricted points.

As for using a credit card in an emergency?
As one chap online so delicately put it “using a credit card for an emergency is like taking a poop in your own lifeboat!”

Using-a-credit-card-for-an-emergency

To compound the situation, you will be paying interest on top of the emergency expense – perhaps at 22% or more. Even with a ‘money transfer’ you would likely pay a fee of 2% and then have to meet conditions in order to qualify for the 0% rate – in many cases clearing it before use, and then not using it for anything else at all until the money transfer was cleared.

The alternative is to operate an emergency fund – basically saving an amount of money that is only to be used for emergencies.

Speaking of the benefits of emergency funds, I recently saw a crazy advert. It was for a banking app that you could use to extend your personal loan, while you were broken down at the roadside in the car you had bought with that loan!

After building up 17 years experience in industry and practice, James started his own business from scratch in 2006. He now helps others to do the same, while minimising both the risks and costs. James is dual qualified in tax and accounts, and has won multiple awards for small business. In 2014 he was invited to Downing Street, as one of the Small Business Saturday 100 winners.

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