Something happened, and you need money. Urgently.
You look at your savings account. Tumbleweeds roll across the place your emergency fund should occupy. Meanwhile, your credit card beckons with its generous limit.
What do you do?
If you reach for your credit card, you’re not alone. When faced with unexpected expenses of $1,000 or more, 1 out of 5 U.S. adults (21 percent) would do the same, according to Bankrate’s 2024 Annual Emergency Savings Report.
As you can see, it’s a rather common move. Unfortunately, it’s also a risky move. After all, it lands you in expensive debt. But then, of course, the natural question is, “What can I do instead?”
Let’s talk about it.
Here’s what you can do in an emergency when you don’t have enough savings — and how to avoid this situation to begin with.
What’s wrong with using a credit card for emergencies?
Interest charges make credit cards unfit for emergency expenses. This year, credit card interest rates hit their highest levels on record since Bankrate started tracking them in 2005. The average interest rate is 20.42 percent right now, according to Bankrate data.
“Credit card debt is high-cost debt in any interest rate environment, but that was especially true with the average credit card rate hitting a record high in 2024,” says Greg McBride, chief financial analyst at Bankrate. “Credit card rates won’t come down fast enough to bail you out of a bad situation.”
To put this into perspective, let’s say you’ve been hit with a $1,500 car repair bill. You commute to work every day and have no choice but to fix your car. Understandably stressed, you charge your credit card. Your car problem is solved. But now you have a $1,500 balance at 20.42 percent APR. You haven’t planned to add another recurring expense to your budget, but you make some room and pay $100 toward the balance every month.
It takes you 18 months to pay off the balance. You spend $246 on interest charges. That’s a year and a half in debt — if you don’t continue charging your credit card, that is.
That’s how a single large expense can add another financial burden to your plate just because you put it on your credit card.
Understand the costs: Credit card debt payoff calculator
What you can do instead of using a credit card
What you can do “really depends on your credit score,” says Yanely Espinal, director of educational outreach at Next Gen Personal Finance, a nonprofit working to bring personal financial education to high school students. Espinal is also an author of a personal finance book “Mind Your Money.”
With that, let’s break down your options based on whether you have good credit (a FICO score of at least 670) — or not.
If you have good credit
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It’s not always wrong to charge a large unexpected expense to your credit card. Specifically, if you have good credit, you might qualify for a 0 percent APR credit card. This type of card provides an intro period during which your purchases don’t accrue interest. Currently, you can find cards that provide as long as 21 months of 0 percent APR. If you use one of these cards, you’ll still put yourself in debt. But at the very least, you’ll have plenty of time to pay it off without interest charges.
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Personal loan. When you get a personal loan, you pay it back in fixed monthly payments. You’re likely to qualify for a lower interest rate than what credit cards charge. Espinal suggests borrowing from a credit union since you might be able to score a single-digit interest rate. “That’s going to be the best way to go because it’s much, much less in interest fees that you’re going to pay,” she says.
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Home equity line of credit (HELOC). If you’re a homeowner, you might be able to pull money from your home equity at a low interest rate. In this case, your home is collateral for the borrowed funds, so it’s crucial to understand the risks of this option. If you fall behind on your payments, you might lose your home to foreclosure.
If you don’t have good credit
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Friends or family. “If you don’t have a good credit score… start thinking about who in your life that you really trust,” Espinal says. This is by no means an ideal option, but a loan from a family member or friend is likely to be more flexible than anything else you can get. Outline the terms of the loan and stick to them. Your relationship is collateral, so don’t risk it by not paying back as promised.
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Salary advance. When all else fails, you can also look into a salary advance — if your employer offers it. This option allows you to borrow against your future earnings. Terms and requirements vary by employer, so talk to your HR department to find out what’s available to you.
Keep in mind: A salary advance from your employer isn’t the same as a payday loan from the strip mall storefront around the corner. Payday loans usually come with costly fees, exorbitant interest rates, few consumer protections and a high risk of default. Avoid them if at all possible.
If all else fails
Sometimes, you’re simply out of options, and your credit card is the only way you can pay for an urgent expense. If this course of action appears unavoidable, brace yourself. You’re about to be in credit card debt.
You’re not alone here. In fact, 50 percent of credit cardholders say they carry a balance from month to month, according to Bankrate’s Credit Card Debt Survey. If you find yourself in this position, your top priority should be to get rid of the debt as quickly as possible.
There are many ways to pay off credit card debt. Choose one you can stick with because consistency is the name of the debt payoff game. It’s also a good idea to stop charging your cards until you eliminate the balances.
And while you’re on it, make a plan to build an emergency fund. Savings can prevent you from finding yourself in such a predicament again.
How to jumpstart your emergency fund
An emergency fund is savings that you only use, as the name implies, in emergency situations. Experts generally recommend you have three to six months’ worth of essential expenses saved.
Of course, building an emergency fund takes time and patience. It’s no easy task for many people, especially those living on tight budgets. The following steps can help you get started quickly:
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Make a budget. Go through your spending and see which expenses you can cut. This might not be pleasant, but remember that this doesn’t have to be permanent. “It’s only for a few months or maybe a year [until] you are in a better place with some savings,” Espinal says. She also recommends negotiating bills with your service providers to reduce your essential spending.
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Set up a direct deposit to savings. This way, when you’re paid, a portion of your paycheck goes straight to your savings. Get a high-yield savings account for this purpose to help your savings grow more quickly.
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Pick up some extra work. To be completely honest, I hate giving this piece of advice. Sure, if you don’t have enough money, why don’t you just work more? But the truth is, sometimes it’s a valid financial strategy. I did freelance work for about two years in addition to a full-time job. It was exhausting, but I reached some important savings goals. “Most people want to save, but they just don’t have enough income,” Espinal says. “Pick up some extra work until you hit that savings goal… and then you can go back to your normal work schedule.”
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Keep saving. As is the case with many financial goals, building your savings requires consistency. Prioritize your savings until your emergency fund is in good shape. To stay motivated, remember that every little bit helps. Even $500 in emergency savings is better than $0 with a hope and a prayer.
The bottom line
When unexpected expenses happen, and your savings account isn’t up to the task, using your credit card might seem like the simplest solution. However, the consequences in the shape of expensive debt aren’t quite as simple to deal with.
Luckily, you might have better options. Whether you have good credit or not, look into potential alternative solutions before you reach for your credit card. And once your emergency is taken care of, focus on building your savings to avoid finding yourself in such a situation again.
