Just because credit cards allow us to borrow a maximum amount, it doesn’t mean we should max out. In addition, the ability to get a cash advance from your credit card should never be considered the equivalent of having money saved in an emergency fund.
When you use a credit card for a purchase or a cash advance, you’re going into debt. You owe the credit card issuer money and they’re charging you interest until you pay it back. When you have an emergency fund, a savings account for example, you remain in control and you don’t have interest charges when you’re using your own money.
There are times when we need to have cash on hand. However, a credit card cash advance will usually trigger significant fees that are charged from the moment you borrow, so you’re only digging yourself deeper into debt at the exact time when you’re financially weak. Even worse, if you’re relying on a credit card that you don’t use regularly, an issuer can cancel your credit at any time – this means your safety net goes away too.
At the end of the day, your own emergency fund gives you more control and more options. You’re not at the mercy of a credit card issuer that will charge you fees, which will make it harder for you to get back on your feet once the financial emergency is over.
Emergencies are going to happen to all of us — they’re inevitable and a part of life. So don’t delay, get started on building that emergency fund today.
The information on this page is provided for educational purposes only and is not tax, legal, financial planning or investment advice. Neither the information nor any opinion expressed in this section constitutes an offer to buy or sell any securities or advisory products. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing involves risk.