The Hidden Dangers of Relying on Credit Cards for Emergency Expenses
When unexpected expenses arise, many people turn to credit cards as a quick fix. However, this solution can lead to a bigger problem: high-interest debt. According to a recent report by Bankrate, about 25% of respondents would use a credit card to pay for an emergency expense and pay off the balance over time. This figure is up from 21% in 2024.
The Consequences of Carrying a Balance
Paying off unexpected expenses with credit should be a last resort, warns certified financial planner Clifford Cornell. If you don’t pay off the balance quickly, you’ll face high-interest rate debt. The average annual percentage rate for credit cards is now about 20%, according to Bankrate data. For example, if you put a $600 repair bill on a credit card with a 20% interest rate, you’ll pay about $10 in interest if you can’t zero out the balance after a month. Make only the minimum payments, and it will take you over five years to pay off the debt, with nearly $400 in interest.
Why Emergency Savings Are Crucial
Experts emphasize the importance of having an emergency fund to cover unexpected expenses. However, many individuals, especially younger generations, lack sufficient savings. According to Bankrate, only 28% of Gen Z adults can pay for a $1,000 surprise expense in cash. Instead, they’re more likely to pay with a credit card and pay it off over time.
Building an Emergency Fund
Creating an emergency fund may seem daunting, but it’s essential for avoiding high-interest debt. Advisors recommend aiming for three to six months’ worth of living expenses in case of unexpected costs, job loss, or medical bills. To make it more manageable, break it down into smaller, achievable goals. Having a cash reserve will provide peace of mind and protect you from financial shocks.
Alternatives to Credit Cards
If you’re forced to rely on a credit card for an emergency expense, try to pay it off as quickly as possible to avoid high interest. Consider breaking the cost into two or three larger payments or exploring a 0% balance transfer card. These options can provide temporary relief, but use them wisely to avoid falling into debt.
Take Control of Your Finances
Don’t let unexpected expenses catch you off guard. Start building an emergency fund today, and avoid the hidden dangers of relying on credit cards for emergency expenses.
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