Unexpected financial crises can happen to anyone at any time. In times of crisis, an emergency fund comes in handy to meet essential expenses.That is why it is constantly emphasized that it is necessary to create and maintain an emergency fund.
Can I use a credit card for emergencies?
Some people may try to use a credit card as an emergency fund. Although this may seem like a good strategy, it is not a substitute for an emergency fund and has various risks.
Card help: When a financial crisis occurs, you can use a credit card to get the necessary money. You can take an amount that is within the card limit. So, although a credit card can help you meet an emergency need, you should keep in mind that this amount must be paid on time.
High interest: What if you do not have the corresponding money on hand when the credit card amount is due? Although this amount can be paid in monthly installments, the interest rate for this is high. It should not be forgotten that credit card debt is a high-cost loan.
New trend in card usage
In a new trend in credit card usage, credit card spending has increased in non-metro cities.
In India, credit card spending in non-metro cities has increased by 175 percent in the last six years, according to a report released by credit card company Visa. This is four times more than the usage in metro cities.
Cities including Trichy and Tiruppur in Tamil Nadu and Bhubaneswar and Jaipur are leading this new trend. The changing habits of consumers are the main reason for this.
Moreover, features such as easy transactions, service in local languages, and reward points have also strengthened credit card usage.
Online transactions have also increased in these areas.
However, despite rapid growth, credit card penetration in these cities is low. This also presents an opportunity for the introduction of dedicated credit cards, the report says.
Debt burden: Although you can seek a personal loan facility to pay off credit card debt, it should be remembered that this also has a high interest rate. Moreover, it can become a debt burden. If the debt burden is not managed properly, it can become a problem and cause harm.
Risk factor: Credit card credit limits can change at any time. Banks can suddenly reduce the credit limit. Sometimes, it may even close the card. Therefore, using a credit card as a substitute for emergency funds is a very bad idea.
Need for funds: Therefore, it is very important to have a separate emergency fund. If necessary, you can pay off the credit card first and then pay off the emergency fund. But such funds should be available.
