Do I Need an Emergency Credit Card?
All credit cards are for emergencies, right? Well, not really. Having one card in your wallet specifically dedicated to emergency needs can be a shrewd choice to insulate yourself from unexpected financial issues.
A designated emergency credit card can help you out when you have an unexpected situation that costs more than your emergency savings can handle. Here’s the lowdown on what an emergency credit card is, what to look for in one and what to do with it once you get it.
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Do I need an emergency credit card?
To answer this question, it’s necessary to define “need.” Lots of people live their lives without an emergency credit card or, indeed, without credit of any kind. They get along just fine — provided they have an emergency savings account that can cover any problems they run into. Still, some problems, such as expensive medical care, might cost more than your emergency savings can cover.
Remember that having an emergency credit card doesn’t mean you have to use it frequently. Hopefully you never have such an emergency and, if you do, it doesn’t empty what you have saved up. Still, you might feel more secure having that extra cushion in place in case you do need it.
What makes for a good emergency credit card?
If you decide you want to have an emergency credit card in your wallet, what are you looking for? Here are some basic guidelines for the emergency credit card:
- A High Credit Limit: Ideally, an emergency credit card would have at least $5,000 available, but the higher the credit limit, the more you could be covered for in an emergency. Remember that you’re not going to be using this credit for anything but the most dire emergencies.
- Revolving Account: You don’t want the kind of charge card that you have to pay off at the end of every month for an emergency line of credit. Look for something that you can pay off over time.
- Low Interest Rate: This is something you should be looking for in all your credit cards, but especially those you plan to use for large, emergency purchases. Even a couple interest points can add significantly to your total costs over time.
- Low Fees: Whether cash advance or ATM fees, you want these to be as low as possible, allowing you to access cash when you need it, without paying a lot extra.
- Annual Fees: If you don’t intend to use this credit card, it does not make sense to pay an annual fee for the emergency credit card. While enhanced rewards may be nice, they’re almost never going to be worth paying fees for on an emergency credit card.
What do I do with an emergency credit card?
The short answer is “nothing.” In fact, you might not even want to keep it in your wallet. This makes it harder for you to find an “emergency” where there really isn’t one. (However, many card issuers will close an account after many months, often 18 months, of inactivity.)
Don’t worry about resorting to gimmicks like freezing the card in a block of ice so that you can’t access it. Instead, just keep it with your other important documents, like your mortgage papers and investment statements. When you need it, take it out. Otherwise, leave it alone.
In the event that you do use an emergency credit card, the usual rules of engagement apply: Pay down your debt as quickly as possible and don’t miss any payments.
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Remember that an emergency credit card is not a supplement to an emergency savings fund, it’s a complement to it. Don’t use credit where you don’t need to. Have a solid emergency savings fund (usually about six months of living expenses) so that you only need to use your emergency credit card for the most dire emergencies.