You might be having a completely normal day, but then you experience a car accident and have to pay for car repairs immediately. Otherwise, you'll lose your sole means of transportation, which means you put your job at risk. Your child could need a sudden trip to the emergency room, which leaves you with expensive bills for tests and procedures, especially if you don't have insurance.
When the bills for these types of emergencies come due, many people think their only solution is to put the charge on their credit card. However, charging emergency finances to your credit card can ruin you financially and cover you in a mound of debt that you'll have a difficult time escaping from.
Below, we'll tell you why it's important to avoid using your credit card for emergency charges, and then we'll discuss some of your other options for financial assistance during hard times.
Why Should You Avoid Credit Cards?
Credit cards exist for a reason-they make it possible for you to purchase items you need right away but can't pay for immediately. In some cases (and when used correctly), they can also be slightly more secure for Internet use than debit cards.
However, credit cards work best when you only use them for small purchases that you're positive you can pay off by the end of the month. When you put large charges on your credit card and then fail to pay them off entirely month after month, the negative consequences start to add up.
First of all, credit card companies charge some of the highest interest rates in the business. When you put thousand-dollar charges on your credit card but fail to pay them off, you might end up paying at least twice as much as the original charge as you pay off your interest rates.
Second, some other loans are tax deductible-but credit cards aren't. As unsecured debt continues to accumulate on your credit card, you're responsible for paying it off yourself.
In general, you should do whatever it takes to keep large charges off your credit card. Any amount from $500 upwards should stay off your card unless you're positive you can pay it off before your next monthly statement. In particular, steer clear of putting the following charges on your credit card:
- Student loans or tuition payments
- Tax payments
- Mortgage or rent payments
- Medical bills
- Expensive purchases, like new cars
- Expensive vacations and traveling fees
It's possible to use a credit card responsibly-doing so can improve your credit and give you a secure way to make necessary purchases. But using credit cards for emergency transactions can often leave you in more trouble than you started with.
What Alternatives Do You Have?
It might seem like credit cards are your only option in a financial emergency-but they're not. Here are a few alternatives to explore before you put a medical bill or tuition payment on your credit card.
1. Payday Loans
Payday loans work by giving you an advance on your next paycheck. Once you receive your paycheck, you pay back the loan. Payday loans can give you the cash you need right when you need it.
If you choose this form of credit, make sure you really can pay back the money by your next paycheck, and don't take more money than you need. Interest rates apply on any kind of loan, and it's important to do whatever you can to avoid making interest payments on any type of loan.
2. Payment Plans
Some doctors, insurance companies, and businesses offer payment plans for customers or patients who can't pay a full cost upfront. Don't be shy about calling your insurance company and asking any questions about your bills and opportunities for payment plans.
Similarly, don't fret about asking your dentist, car repair shop, or any other corporation or person about their payment plans. Business professionals are used to fielding these types of questions, and you don't need to feel embarrassed or ashamed about your inability to pay upfront.
If you don't have insurance, you'll have much higher medical bills than someone with insurance. Explore your payment options by contacting your medical provider's billing department. They can discuss financial assistance options, especially if you live near the poverty line.
3. Personal Line of Credit
Your bank probably offers you the option of opening a personal line of credit as an alternative to using a credit card. These credit lines function similarly to credit cards, but your credit all comes from the bank instead of through a credit card company.
However, personal lines of credit come with the same drawbacks as many credit cards. They aren't tax deductible, and they often have high interest rates. Always check your credit score and discuss personal lines of credit with a financial professional before you choose to open one.
What If You Have No Other Options?
If you truly have no other option than to put a high charge on your credit card, you might have to go ahead and do so. However, you can still do your best to pay off the charge as soon as possible. You might need to take out a payday loan to pay off the credit card bill, or you might plan to take up a new part-time job to make up the difference until the bill is paid off.
If you follow some of the steps in this blog, you'll have a better chance of avoiding high credit card charges. With a little help, you can pay off loans, avoid interest rates, and make high payments, even when doing so seems unfeasible.
Get in touch with a financial professional to learn more about your options.