Emergency fund

jamels2

One of the priorities of budgeting appears to be having an emergency fund.
However if you have c.c. debt Martin suggests paying this off first instead.
Quick question, if I have 0 c.c debt or pay it off each month , should I build an emergency fund in a instant savings account or just keep the credit card balance instead?

Mnd

If you are paying interest or charges on the card, pay it off if you can

bowlhead99

jamels2 wrote: »

One of the priorities of budgeting appears to be having an emergency fund.
However if you have c.c. debt Martin suggests paying this off first instead.
Quick question, if I have 0 c.c debt or pay it off each month , should I build an emergency fund in a instant savings account or just keep the credit card balance instead?

Martin suggests paying off the cc debt first.

If you choose to not pay off the debt and keep the balance owing on the card, so that you end up paying interest on the cc debt, just so you can have a small savings balance...

... that doesn't sound like 'paying off the cc debt first'. That sounds like 'not paying off the cc debt, so I can have a savings balance'.

If instead you mean using your credit card allowing a small balance to build, which you always pay by the due date on its statement so there is never anything carried forward from the previous month to the next statement, and never any interest paid... that's fine.

jamels2

What I mean is I pay off the c.c. balance so i don't pay interest. It's whether to build the emergency fund or just rely on the credit limit of the c.c in an emergency?

danm

What you are suggesting is exactly what the emergency funds is designed to avoid...I.e using a high cost for of borrowing to pay for what life throws at you.

grumiofoundation

jamels2 wrote: »

What I mean is I pay off the c.c. balance so i don't pay interest. It's whether to build the emergency fund or just rely on the credit limit of the c.c in an emergency?

Well how much emergency fund do you think you might need and what is your credit limit?
If you use all this credit in one go (emergency) will you be able to pay it all off the next month?

But most importantly the money you could build up in an instant access account - where is this going?

george4064

It varies from person to person depending on their circumstances (e.g. a 40 year old father of a family of 5 who owns a home with mortgage should probably have a larger emergency savings than a 20 year old who lives at home with their mum & dad).

However, typically people suggest around 3-6 months of expenses in instant access accounts for emergency savings.

Zanderman

jamels2 wrote: »

What I mean is I pay off the c.c. balance so i don't pay interest. It's whether to build the emergency fund or just rely on the credit limit of the c.c in an emergency?

That wouldn't be an emergency fund though. Just a debt that, if you've suddenly got financial problems like losing your job, you can no longer pay back.

The point of an emergency fund is to have money that is yours, not someone else's (i.e. not the credit card company's money) that you can use as and when needed.

Eco_Miser

jamels2 wrote: »

What I mean is I pay off the c.c. balance so i don't pay interest. It's whether to build the emergency fund or just rely on the credit limit of the c.c in an emergency?

Build your emergency fund AND pay off cc debt. If you can't do both, you're already in an emergency situation.

The correct use of a credit card is to delay payment by a month, meaning your emergency fund doesn't have to be instantly available - you can wait a week or so for processing and payment by BACS.

Fodderlink

Don't rely on the credit card if an emergency happens because 0% doesn't last forever and paying interest sucks. Build up an emergency fund that you are happy with (3-6 months or more) with the CC as back up if things really do go bad.

G_M

If you can draw on the credit card in emergencies at 0%, then that's great. Cheap credit. But only a few cards allow you to access cash at 0% (as opposed to transferring debt from another card).


If you are going to end up paying 12%, 20% whatever on the credit card, that makes no sense.