An emergency credit card can come to the rescue

By Emma Lunn

Ideally, everyone would have an emergency fund for unexpected expenses. But if setting aside several thousand pounds isn't realistic, an emergency credit card is a good back-up. Just make sure you choose -- and use -- it wisely.

The cost of the unexpected
According to March 2013 research by Barclays, unexpected costs set consumers back about £760 per person each year. In 2012, two-thirds of Britons were hit by out-of-the-blue expenses such as broken appliances, MOT repairs, vet bills and dental costs.

The biggest unexpected cost is the boiler, which cost the nation a collective £2.6 billion to fix last year. Meanwhile, homeowners spent an average of £812 replacing white goods, electrical appliances and house repairs. emergency-credit-card

Preparing for the worst
Experts recommend saving up between three and six months' salary in case disaster strikes. An instant-access Isa, which lets you earn interest tax free, or a regular savings account, is the best home for emergency funds.

Still, a credit card can come in handy if you're still working on building up your emergency savings -- or if you can't afford to set anything aside. The trick, though, is to remember that it's an emergency card.

"There is a danger your emergency credit card will be used to supplement your income. You can prevent this by ensuring that you don't use your credit card for holidays, shoes, clothes and entertainment as well as food shops, household bills and other debt," says Francesca Toma, media officer at debt charity StepChange.

Which expenses justify the use of an emergency card? Toma includes boiler breakdowns, car breakdowns and temporary losses of income. If you think you'll be too tempted to use the card for anything else, the out-of-sight-out-of-mind approach may work.

"You may find it helpful to store your credit card in a safe place away from your wallet or purse," Toma says.

Choosing an emergency card
As with any credit card, it's important to compare rates and fees when choosing an emergency credit card. Because emergencies can run into thousands of pounds, getting the lowest interest rate you qualify for is best. Also, consider the credit limit. Exceeding about one-third of your credit limit can damage your credit -- so make sure your limit is at least £1,000 to £5,000 to leave yourself enough room for the worst-case scenario. If the card you apply for does not come with a high limit, after several months of small charges and on-time payments, you can try to contact the card issuer and request a higher credit limit.

Also check the fees for using the card abroad. Emergencies can often include emergency travel -- going to a relative's funeral, for example. Even if the trip is for happier reasons, such as a holiday, taking your emergency card along is a good idea. It could come in useful if you need to buy replacement flights or pay for extra accommodation, or if you have an accident and need to pay for medical treatment. Some cards even include travel insurance benefits.

Bouncing back
If the worst happens, and you're forced to use your emergency credit card, you'll have to create a repayment plan.

 "Don't fall into the trap of thinking you are managing your credit card debt by paying the minimum amount every month, because your debt will only grow," Tomas says.

Let your credit card provider know if you can't make the monthly payment. If you used your card for a true emergency, your creditor may be understanding -- and may waive penalty fees or suggest a payment plan.

See related: Credit cards v. payday loans: What's the best way to get emergency cash?


Published: 23 May 2013