When to use credit cards versus your emergency fund (infographic)

With all of the recent economic uncertainty, it may be a good time to shore up savings and reduce debt to ensure good financial footing. When considering how to tackle an unexpected expense, take into account amount, timeline, urgency and other factors like interest rates.

Unexpected expenses are a fact of life, which is why it’s important to have emergency funds available when you need them. Make a plan to set aside money is to establish a dedicated savings or checking account and consider having a credit card to help when faced with unplanned costs.

Confront an unexpected expense with these questions:

Is this an expense I need to tackle right now?

If you can pay the unexpected expense without disrupting your budget or financial plan, it’s not an emergency and you don’t need to use your emergency savings or your credit card right now.

Did I research to find the lowest cost and/or sensible option?

If you do need to make a sudden expense, make sure you consider all the available options to check prices, deals and other opportunities to reduce the overall expense.

Do I have enough in savings to cover the full amount?

If possible, it’s often more effective to use your emergency funds before resorting to your credit card.

Is there a payment plan option I can explore?

Sometimes, larger bills and purchases comes with payment plan options that spread the cost out over several months. Be wary of “buy now pay later” options, though, which can come with extra costs like fees and accruing interest which can end of costing you more over time.

Does my available credit card balance cover the full amount?

If your credit card is already almost at your credit limit, it’s probably not your best bet for an unplanned expense. Consider all other options (cash, payment plans, savings, generating income, etc.) before using the last bit of your available credit.

How quickly can I pay down the balance if I use my credit card to pay?

A credit card can be a good alternative for smaller unexpected expenses. But, try to put together a plan to pay the credit card balance in full as quickly as possible. This can help reduce the amount of interest you pay on the purchase.

These questions are important steps to determining whether a credit card or your savings is the right way to pay for a surprise cost.

You handled the unexpected expense. Now what?

Wiped out your savings? Get it back.

1. Tuck away money each month.
   Set aside a specific amount of money each month as though it was a required expense. Increase the amount as you can afford to over time.
2. Analyze and reduce expenses.
   Put your monthly expenses into two buckets: fixed and flexible. Fixed expenses are items like your rent or mortgage because the amount tends to stay the same each month. Flexible expenses are costs such as groceries and electricity that vary month to month. Take a close look at your flexible expenses to see if anything can be reduced to stalled while your build your savings back up.
3. Be consistent.
   Consistency is key for building a secure savings amount, which is recommended to be equal to at least six months of your living expenses. Every dollar into your account is progress.

Building an emergency fund is just as important as getting debt under control and being financially healthy.

Had to use your credit card? Tackle the debt fast.

1. Focus on high interest debt first.
   It may be easier for you to stick with a debt payoff goal if you attack the card with the lowest balance. However, most financial experts agree that the best practice is to pay down the balance on the highest interest card first.
2. Double or triple payments.
   Consider doubling or tripling your monthly payments, or apply tax refunds, bonuses and other windfalls toward outstanding balances. The faster you can tackle your highest interest card, the sooner you will reach a debt-free lifestyle.
3. Stick with your plan.
   When faced with debt, it is critical to track and budget expenses to monitor progress and keep spending habits under control. Once the highest-interest card reaches a balance of zero, it’s time to move on to the next highest interest card.

Getting credit card debt under control requires excellent planning, dedication and patience. Once goals are met, it is important to keep moving forward with healthy spending and savings habits. Being financially prepared for life’s unexpected events is smart. Having peace of mind is priceless.

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