Need emergency funds? Credit cards can help. Know how

Whether it's a medical emergency, lost employment, or a rough patch in the business, the financial aspect of emergencies never changes.

Almost every emergency involves unplanned expenses. This is why creating an emergency fund is recommended. But what if you haven’t? How can you finance an emergency?

Through your credit card, that’s how.

Yes, you read it right. With credit cards, you can get emergency funds through credit transactions and cash advances. Let’s learn about it in detail.

Credit access and cash advance – two emergency funding solutions
 

Credit access is the main benefit of a credit card that allows you to transact on credit. You can pay for your immediate needs even when you don’t have sufficient funds in your bank account. In an emergency, if you are short on funds, you can use your credit card to pay for your pressing needs. You can then make the actual payment by the due date, which is much later. You can also use the EMI feature to further break down the payment and ease any burden. 

Another credit card benefit is the ability to withdraw cash from an ATM. This proves helpful when you need liquid cash. With the cash advance facility, you can withdraw liquid funds from any ATM and use them for your relevant needs.

Benefits of using credit cards for emergencies 
 

Some of the benefits of using credit cards to access money in an emergency are as follows:

• EMI facility

Credit cards allow you to convert bills into EMIs, also known as Balance Conversion. You can choose from a range of flexible tenure options for easier repayments. This helps in planning repayments without hurting your budget.

For instance, IDFC FIRST Bank Credit Cards offer balance conversion facilities with repayment tenures ranging from 3 to 18 months.

• Rewards and benefits

Whenever you use your credit card for a transaction, you rack up reward points against the transaction value. Accumulate reward points, and you can use them to get attractive gifts, discount vouchers, and even pay your credit card bills.

Besides reward points, your credit card can offer other benefits and privileges like cashback, discounts, complimentary airport lounge access, free insurance coverage, etc.

• Easy to use

Getting emergency funds from a credit card is very easy. Just swipe your card for credit transactions or use it to withdraw funds at an ATM, and your needs will be met. No documents or lengthy eligibility requirements would be required. Your credit limit is your financial cushion, which can be used when needed.

• Instant funds

Emergencies usually need instant funding, and credit cards offer instant access. No need to wait for loan sanctions as credit cards offer a pre-approved credit limit, which is yours to use as you see fit.

Points to consider when using credit cards for emergencies 
 

While credit cards double up as a source of emergency funds, it is essential to use them wisely. A simple oversight and you might end up with a huge debt burden involving high interest rates.

Here are a few things to consider when using credit cards for emergencies:

• Interest rates and charges

Credit cards usually have a high interest rate or Annual Percentage Rate (APR). While you get credit access, not repaying your dues on time can result in considerable interest outgoes. This might lead you into a debt trap, which is impossible to get out of.

The associated interest rates add to your overall expense even when you choose the balance conversion facility and convert your outstanding dues into EMIs.

If you choose the cash advance facility, additional charges apply to the amount you withdraw, and you also attract interest on the withdrawn amount.

Pro tip: Choose a credit card with a low APR and associated charges. This would help keep your additional expenses affordable. For instance, IDFC FIRST Bank Credit Cards have low APRs starting at 9% p.a., making them a suitable choice.

• Available funds

The funds available with the card are equal to the credit limit the credit card issuer offers. If you are a first-time credit card user or your credit limit is low, it restricts funds availability, which might not optimally fulfill your needs.

Pro tip: Keep your repayment history clean to access a higher credit limit. Good card usage also enhances credit limits.

• Avoid high dependency

Don’t become too dependent on credit cards to save you in emergencies. Try to set aside an emergency fund in advance to meet financial needs of a contingency.

Pro tip: Set aside a minimum of 3-6 months’ worth of your income in a liquid account as an emergency fund, which can be redeemed when needed.

• Impulse spending 

Avoid impulse spending even with a high credit limit. Unnecessary spending can strain your budget and prove difficult to repay.

Pro tip: Set up a maximum spend limit on the credit card for regular days. Avoid going beyond the credit limit for emergency, as additional charges would apply.

• Credit score impact

Using your credit card also increases your credit utilisation, which lowers your score since credit utilisation is an important component of credit score calculation. In addition, if you don't pay your debts on time, you will experience a major hit to your credit score.

Pro tip: While you can’t help but increase credit utilisation in emergencies, keep control of repayments. Make sure you pay your bills on time to avoid hampering your credit rating.

Mindful usage = financial security
 

Credit cards are an effective tool for emergency funds. However, the keyword is ‘mindful usage’. Use your credit card wisely to avoid high interest rates and added charges. Choose a suitable credit card like IDFC FIRST Bank Credit Cards, which offer easy balance conversion, low interest rates, and several other credit card benefits. To maximize your credit limit, you should have a clean repayment history, which will enable you to finance emergencies efficiently.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.