Should I Use My Credit Card For Emergencies?

For this post, we’ve teamed up with our partners at Fairstone.

Short answer? It depends.

Emergencies happen to all of us (and always at the worst time). Is using a credit card for emergency expenses the right choice? That’s up to you. Our partners at Fairstone shared some advice to help you decide if and when you should use your credit card to cover unexpected expenses.

Here are some typical scenarios that outline whether you should or shouldn’t pay for emergency expenses with your credit card:

If: You can’t afford to pay off the expense by the time you receive your bill

Answer: No, don’t pay with your credit card

If you can’t afford to pay for the expense in full by the time your credit card bill is due, you’ll incur interest. On top of this, credit cards are a type of revolving debt, meaning there isn’t a set payment schedule or a set date that you’ll need to pay down the full balance. Over time, interest charges will accrue and debt can become unmanageable. In this case, it’s better to consider alternative options to pay for the expense.

If: You can afford to pay off the expense (plus, you earn cashback or rewards on purchases)

Answer: Yes, pay with your credit card

Perhaps you just need some time to come up with the money for an unexpected expense (like waiting a week or two for payday). As long as you pay down your credit card balance before your payment date, you won’t owe any interest. In this case, using a credit card can buy you some extra time.

Plus: if you earn cashback or rewards on purchases, you can use those rewards to help pay for the expense and alleviate some pressure off your budget.

If: You’re already carrying a balance on your credit card and only making minimum payments

Answer: No, don’t pay with your credit card

If you’re already carrying a balance and making minimum payments, charging another purchase on your card (even for emergencies) will only push you deeper into debt. You’ll want to find alternative ways to pay for the expense – check out our ideas at the end of this article for some inspiration.

If time goes on and you’re still not able to make a dent in your credit card balance, you may want to consolidate your credit card balances. Why? You’ll benefit from a structured debt repayment plan and will likely pay off your debt faster, saving you hundreds to thousands of dollars in interest.

If you’re interested in a debt consolidation loan (request a free quote here), you can apply for loan amount large enough to pay off any debt and cover your unexpected expense. It’s a win-win.

If: You’re using a store credit card that offers a longer grace period (e.g. 6 months no-interest)

Answer: Yes, pay with your credit card

More and more stores offer a branded credit card and attract customers by offering longer grace periods than major label credit cards. It’s not uncommon to see promotions that advertise up to 24 months with no interest and no payments. Since these are typically offered at furniture or appliance stores, it’s a great thing to take advantage of if your fridge suddenly breaks down, or you have an urgent home repair.

Just be careful – once the grace period ends, you may be met with accrued interest, which has started to build since the date you made the purchase (and can make your balance skyrocket).

If: You need to take out a cash advance on your credit card to pay for the expense

Answer: No, don’t pay with your credit card

There are a couple of reasons you may need to take out a cash advance:

1. Wherever you’re paying doesn’t accept credit cards, and therefore the only way to borrow money from your credit card is through a cash advance
2. You need to pay for the expense in cash

In either case, it’s better to find an alternate way to pay for the expense since most credit card companies don’t offer an interest-free grace period for cash advances. On top of this, interest rates are typically higher for cash advances than for regular credit card transactions.

If: You have a low-interest credit card (lower or comparable to that of a loan)

Answer: Yes, pay with your credit card

There are several credit cards that scrap any cashback or rewards and offer lower interest rates instead (up to 7-10% lower than other cards). If you need very quick access to money, paying with a low-interest credit card might be your best option. However, it’s still best to pay off the balance before the grace period (if possible) to avoid any interest charges. Plus, beware of monthly or annual fees on low-interest credit cards – these fees can add up over time and may not be worth the money you’re saving with a low rate.

If paying with a credit card isn’t a good option for you, here are some alternative ways you can pay for an unexpected expense:

• Start an emergency fund: Save spare change in a jar or piggy bank, automate your savings, make coffee at home and put the money you save into an account – however you do it, make sure you keep some money stashed away for emergencies. You’ll thank yourself later.
• Ask to borrow money from a friend or family member (if you feel comfortable doing so): If the help is there, take it. Just remember to return the favour one day when you’re able to.
• Cut down your budget to make room for the expense: Lower your grocery bills for the next few weeks, cancel plans, cook all your meals at home. Take the money you cut from your budget and use it to pay for the expense.
• Try to earn some extra money on the side: It can be as simple as asking a friend if they have any jobs or chores you can help out with on the weekend. Need some inspiration? Check out this article for some simple ways to earn money on the side.
• If you can’t come up with the money, apply for a personal loan: You’ll still have to borrow money to pay for the expense, but most personal loans have a set payment schedule, allowing you to better manage the debt compared to a credit card. Need a loan to cover an unexpected expense? Fairstone can help (plus, you can pay off Fairstone’s unsecured loans at any time without penalty) – get started with a free loan quote.

In some cases, credit cards are a quick solution to help you in a pinch. But, regularly relying on credit cards for unexpected expenses can turn into a bad financial habit. Next time you reach for your credit card for an emergency purchase, consider other alternatives first.

Interested in learning more about credit cards? Check out this in-depth guide explaining everything you need to know before applying for your first credit card.