Credit cards for emergency expenses

Life is full of unexpected events and not all of them are pleasant. Whether a surprise medical bill, an expensive car repair bill or a sudden home issue, emergencies can put a strain on your finances. Though it is best to have an emergency fund set aside in a savings account, you may find yourself tempted to use credit cards when savings won't work.

Credit cards can be both a blessing and a burden in times of economic crisis. They provide instant liquidity of funds at the time you need it, but they can also lead to high-interest debt if used inappropriately.

Let’s explore when it’s appropriate to use credit cards for emergency expenses, what features to look for in a credit card you might use in an emergency, and how to use one responsibly to avoid any unnecessary financial pitfalls.

What you’ll learn

• Why credit cards can be a lifeline in emergencies
• Appropriate situations to use a credit card for emergencies
• What to look for in a credit card you might use in an emergency
• Best practices for using a credit card in emergencies
• Creative card alterntives for emergencies
• Preparing your finances for the future

Why credit cards can be a lifeline during emergencies

A credit card can serve as a backup safety net for unforeseen expenses when used responsibly. Here's how they can assist.

• Instant access to cash: Unlike a line of credit or a traditional loan, you don't need to wait for approval or apply to access your credit card. Provided you have available credit, you can use it immediately.
• Flexible payment terms: In an emergency, your priority may be to cover the expense rather than worry about paying it back immediately. With a credit card, you can pay the minimum or pay the entire amount when your finances are better.
• Less costly than cash advances or payday loans: Proper use of a credit card is usually less expensive in the long run than payday loans or cash advances.
• Purchase protection benefits: Credit cards often offer purchase protection benefits such as extended warranties, price protection, and fraud protection. This can be an added protection while replacing important items in an emergency circumstance.

To keep finances organized, some people create a designated emergency credit card, used only for urgent expenditures. This is one way to keep emergency expenditures separated from everyday expenditures, making it easier to track and manage expenses.

Appropriate situations to use a credit card for emergencies

Credit cards can be a helpful resource in emergencies, but they should only be used when necessary.

Medical expenses are one of the most common surprise uses of credit cards. If a bill is not prepaid by insurance, or you need to pay for emergency services out-of-pocket, a credit card can be a helpful interim solution. Essential car repairs are another instance where using credit might be necessary—if your car is your primary mode of transportation, fixing it immediately is often non-negotiable.

Emergency home repairs, such as critical roof leak, HVAC failure or a plumbing emergency, are also typically valid reasons because you never know how much more damage you will incur by procrastinating. Similarly, travel based on family emergencies or last-minute flights are sometimes unavoidable, and a credit card will cover when time is of the essence.

However, credit cards should not be used for discretionary purchases simply because there is no money available to spend. If the purchase can wait until you have money saved, then it is better to hold off rather than take on unnecessary debt.

What to look for in a credit card you might use in an emergency

If you're relying on a credit card in case of an emergency, the last thing you want to deal with is hidden fees, unresponsive customer service or sky-high interest rates. The following features can help make sure you have a safety net when you need it most.

• Low or no annual fee: When something goes wrong, you don't want the hassle of paying extra fees for using a credit card. Get a card that has no annual fee, or one that has a low fee.
• Low interest rates: In the event you do end up with a balance on your credit card after an unexpected expense, a lower rate of interest can pay for itself in the long run. Make sure to shop around and compare the APR (annual percentage rate) on several cards before choosing one. Cards featuring low introductory APR on purchases and balance transfers can help you pay for emergency expenses without collecting interest.
• Customer service support: In an emergency, you'll want to have quality customer service on hand in the event you need assistance with your credit card. Choose a card company with 24/7 customer support you can easily reach through multiple channels (phone, email, chat).
• High credit limit: While there is only so much that you can possibly do with your initial credit limit, it is a good idea to try and obtain a card whose credit limit is high enough to cover emergency expenses effectively.

Best practices for using a credit card in emergencies

During a crisis, charge only what is absolutely necessary—resist the temptation to use your card for convenience rather than actual need. The moment you charge an expense, set up a repayment strategy, aiming to pay it off outright or at least over the minimum balance to minimize any accrued interest.

If your credit card provides cash back or rewards, consider redeeming them for statement credits to lower the cost of an emergency expense. Some credit card issuers also provide temporary hardship programs, such as deferred payments, for those struggling to make ends meet.

Having a back-up credit card can be another smart strategy. If your primary card is maxed out, stolen or hacked, having a second card will make sure you will not be left without essential financial resources in an emergency.

Credit card alternatives for emergencies

While a credit card is handy in a pinch, an emergency fund is a better safety net. Even a modest sum of liquid savings can sharply diminish dependence on debt when unexpected expenses arise.

In situations where you have to borrow, a personal loan could be a cheaper alternative to carrying a balance on a credit card since interest rates are generally lower. For medical bills, health insurance or a Health Savings Account (HSA) should always be the first option before using credit.

If feasible, borrowing from family or friends may also be a smart choice. Although it might not be comfortable to request money, an interest-free loan from someone close can be much less costly compared to acquiring long-term credit card debt.

Preparing your finances for the future

Emergencies may be inevitable, but financial stress is avoidable. Building a strong safety net—whether as an emergency fund, low-interest credit lines or a well-thought-out repayment plan—can make unexpected expenses more manageable.

Although credit cards can be used as a fallback, they are most effective when combined with proactive planning and a broader array of financial backstops. Take the time to think about whether your existing credit card is sufficient for your needs, or whether it would be worth changing to a card with lower fees, improved rewards or a higher credit limit.

By treating credit as a tool rather than a crutch, you can help ensure it works in your favor when life throws you a curveball.