Here’s Why Dave Ramsey Says a Credit Card Is Not an Emergency Fund

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If you don’t have cash put aside for an emergency, it’s easy to rely on a credit card. 

Emergency funds can be powerful tools in your financial arsenal. Having three to six months’ worth of living expenses in a savings account can cushion you against the unexpected. Whether that’s a job loss, a medical issue, or a house repair, there’s a certain power in knowing you’ll be able to handle it. Indeed, with a potential recession on the horizon, some financial gurus recommend putting even more aside.

Unfortunately, for some, the very idea of having an emergency fund can feel like a luxury.

A survey by Suze Orman’s SecureSave showed that 67% of Americans wouldn’t be able to cover a $400 emergency expense. Even before the sky high living costs we’re dealing with now, a lot of households found it hard to cover their essential bills, never mind save for something that might not happen.

If you’re in that boat, you may well think your credit card is a good backup that you could use in an emergency, even if you know it’s not ideal. Find out why Dave Ramsey is vehemently against this plan and whether he’s right.

Why Dave Ramsey says a credit card is not an emergency fund

Dave Ramsey is fanatical about avoiding debt, particularly the credit card variety. He’s also a big fan of emergency funds. “An emergency fund turns a crisis into an inconvenience,” he recently tweeted. The outspoken finance expert added, “PS – A credit card isn’t an emergency fund. It turns a crisis into an even bigger problem. The last thing you need during an emergency is more debt.”

He’s not wrong. Credit card debt can be a financial millstone that drags on your finances. The repayments eat into your monthly paychecks, leaving you less money for other things. On top of that, credit cards often come with high interest rates which can prove costly if you aren’t able to pay down the balance quickly.

There may be other issues too. Running a balance on your credit card can mean you’re using a big chunk of your available credit. This could impact your credit utilization ratio which can knock your credit score if it gets too high. On the other extreme, if you keep a card for a long time with a plan to only use it in an emergency, the card issuer may cancel the card or reduce your credit limit.

The trouble is that knowing about the dangers of using your credit card as an emergency fund isn’t a lot of help if it’s your only option.

Alternatives to credit cards in a crisis

If you don’t have cash on hand when life throws you a curveball, a credit card can solve the immediate problem. But it’s worth also considering alternatives and thinking about the best way to minimize the impact on your finances going forward.

Explore your options: Are there other ways you can access the cash you need? Perhaps there’s a friend or family member who might help, or you have a way to bring in some extra cash. Can you take on more hours at work, or sell unwanted items to avoid going into debt?Look at ways to reduce interest: Credit cards are not the only way to borrow money. If you can qualify for a personal loan with a lower rate, this may save you money in interest payments. Alternatively, see if you can qualify for a credit card with a 0% APR introductory period.

The no-shame approach to building your emergency savings

It often seems as if the world of personal finance is full of “shoulds.” We should spend less than we earn. We should put money aside for our old age. We should keep cash in a savings account in case there’s an emergency. That’s all very well, but most of those shoulds are easier said than done. And if you’re struggling to make ends meet, they can become overwhelming.

If you’re not facing a financial emergency right now, you still have time to build an emergency fund. Not because you should, but because you can see that it will strengthen your financial position and help you in the long run.

In terms of how much to save, think about what’s achievable. Be realistic — you don’t have to be a financial superhero and nobody can save thousands of dollars overnight. But perhaps you can start by putting $50 a month (or even $5 a week) into your savings. Have a look at what you spend and see if there’s anywhere you can cut back, even a little. If you consistently put even small amounts of cash into your rainy day fund, they will add up in time.

Bottom line

Credit cards are not your only choice in a financial emergency, though it is understandable that people see them as an option. The challenge is that leaning on your card can cost you more in the long run and potentially cause more financial difficulties if you can’t pay that money back. See if you can start stashing away some savings, even if it’s only a small amount. That way, you may be able to avoid having to take on debt if there’s a crisis.

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