Tip Tuesdays: Use Your Credit Card for Emergencies Only After You Have First Created a Real Emergency Fund with Real Cash in a Savings Account

by Vinaya HS on January 13, 2009

in Finance

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I have often heard the argument that the credit limit on a credit card serves the purpose of an emergency fund. This strategy by itself is both myopic and dangerous. However, what can make this strategy both farsighted and safe is if you have a real emergency fund with real cash in a savings account backing up your credit card. The credit card gives you the immediacy of funds in an emergency but immediately pushes you into credit card debt which you can now quickly get rid of by using the real cash balance in the savings account. The best of all worlds in my opinion.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 2 comments… read them below or add one }

Girish January 14, 2009 at 9:23 PM

Wow…. That’s a nice idea….
Normally when you are paying through cash you really think do you really
need to buy it?
But when paying through card we will be more liberal and get into the debt trap….
Keep the blogs flowing…
Girish

Vinaya H S January 14, 2009 at 9:36 PM

Well said Girish.

Recently, I thought of upgrading my cellphone and was interested in the N79. The moment I heard the price (nearly 20k) I thought about the cash that would leave my hands and immediately shelved my plans. I don’t carry a credit card and hence there was no temptation.

This economy certainly makes you think many times before spending cash.

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