Using Credit as an Emergency Fund is a Bad Idea

credit emergency fund

Not too long ago my neighbor needed a new water heater. After it was installed, we went on one of our daily walks and she moaned about the expense and hassle.

“Well,” I said, “at least you covered it out of your emergency fund, right?” I’ve heard her speak about their emergency fund so I simply assumed that the replacement water heater had been paid for using emergency cash.

“Oh, sure. We put it on the HELOC.”

“Huh? I thought you had an emergency fund,” I said.

“We do. That’s what the HELOC is for.”

Oh, man, I thought, seeing the huge risks and holes in this plan. Turns out the emergency fund I’d heard her speak o


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7 Responses to Using Credit as an Emergency Fund is a Bad Idea

  1. MG says:

    When I first got out of college I got an awesome deal on a card with a low interest rate. Unfortunately, I can’t catch a break. I had a fully laid out plan to get out of debt. Then I lost my job. Then my car’s brakes needed replacing or I couldn’t go to job interviews. Then my car’s serpentine belt snapped and killed the water pump. Between those two things on my car, I had to charge $700 to my card. Then my teeth started throbbing from the pain and I couldn’t do anything about it. I tried taking the strongest over-the-counter painkiller I could, but that didn’t work after a time. I paid for a filling off of insurance at the time. $250 for a resin filling and $85 for the appointment and xrays. All on a card.

    Keep in mind I’m still out of a job. I charge meals, gas and everything to my card. Now I have a job and a great, steady income. The problem? I now have $8,000 in CC debt and $26,000 in student loans. When I’m at my full-time job, I now write freelance articles for various high profile bloggers. I’m trying to pay off my debt and be a good credit card owner.

    The problem I have is that most people are in much better positions and can say “Why didn’t you pay it in full?” The answer is “because I would have starved and could never have gotten a job or paid rent without my card.” My credit holders are awesome and they’re great about payments. I’m on my way out of debt now but it won’t be until 2019 that I’m completely debt free (student loans and CC debt).

  2. I used to do this, but have since learned the error of my ways. If there is an emergency, I will still put the amount on my credit card, but I will pay it off immediately. I only do this to ensure cash back rewards.

  3. I dumped the balance of my credit cards on to my HELOC more than once. I have learned my lesson but now it will be years before I am debt free. A very expensive lesson that will delay my retirement by 1 or 2 years.

  4. Petunia 100 says:

    Another problem with relying on credit for your emergency fund is that the creditor can reduce or close your credit line at any time for any reason. But cash in the bank is yours, it cannot be taken away on a whim.

  5. I know a few people who say that their line of credit is there emergency savings. ie: If we go over budget this month we will just put it on our line of credit. In my opinion if you don’t have the cash it’s not there, there is no money. So if there is an emergency you are spending money you don’t have. Some people think that having money in an emergency account is rubbish and investing it is the way to go. It’s all personal opinion really. I certainly would opt away from depending on a line of credit as an Emergency Savings though.

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  7. Gailete says:

    MG I hear you on this one as sometimes there just isn’t ANY cash left, but life keeps happening. I have found that as we have dug ourselves out of debt and put cash aside for bills that it gets easier and easier. That still doesn’t mean that a huge problem won’t come up that sucks up every bit of spare cash that you have and then some. When it comes to credit cards I see things a bit differently. You shouldn’t be using them for clothing, and unnessary stuff (and clothing is unnessary–how many people do you know that don’t have more than one change of clothes?). But when life’s disasters happen and you have no money, a credit card is sometimes the only way of keeping food coming in, although you should also be looking for ways to get cash coming in (any legal way) to avoid the use of credit. But the more you learn to live a frugal lifestyle, the better.

    I do think that some folks have never run into a true emergency in their lives. I once worked at a college and lived in staff housing along with 2 other ladies my age in our own apartments. We all had the same basic job, so they should have been making the same basic money that I was. I would make Kraft Mac and Cheese last for 3 meals or a tuna casserole for 4 meals. I didn’t buy anything new, etc. I didn’t have a car (didn’t even have a lisence to drive), yet these girls both had nice cars (not beaters), nice clothes and never seemed to be pinching pennies. All I could guess was they were still being subsidized by their parents and had left home with an adequate wardrobe for working that I didn’t have. I had spent the year before this job working at Arbys in uniform. I don’t know where those girls are today, but having a boost of coming from a wealthier family who can pitch in when needed in those early ‘on your own’ years can make such a huge difference in how people can handle emergencies and their funds as they continue on in life. Lots of kids are graduating now with piles of debt and don’t have any way to adequately support themselves while paying off that debt and so they fall further and further behind. Only frugal living and belt tightening can help them get out of the debt, plus finding every opportunity possible to earn money.

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