You need money and you have no savings. Here’s what you should do instead of using your credit card

Something happened and you need money. Urgently.

You’re looking at your savings account. Tumbleweeds are rolling in where your emergency fund should be occupying. By the way, your credit card dazzles with its generous limit.

What are you doing?

If you’re reaching for your credit card, you’re not alone. When faced with unexpected expenses of $1,000 or more, 1 in 5 U.S. adults (21 percent) do the same Bankrate’s 2024 Annual Emergency Savings Report.

As you can see, it’s a pretty common move. Unfortunately, this is also a risky move. Ultimately, this will put you in expensive debt. But of course the natural question is, “What can I do instead?”

Let’s talk about this.

Here’s what to do in an emergency situation when you don’t have enough savings and how to avoid the situation in the first place.

What’s wrong with using a credit card in emergencies?

Interest fees make credit cards unsuitable for emergency spending. This year, credit card interest rates hit the highest levels in history since Bankrate began tracking them in 2005. The average interest rate is currently 20.42 percent. Bank rate data.

“Credit card debt is a high-cost debt in any interest rate environment, but this was especially true given that the average credit card interest hit a record high in 2024,” says Greg McBride, chief financial analyst at Bankrate. “Credit card rates won’t drop fast enough to get you out of a bad situation.”

To put this in perspective, let’s say you’re faced with a $1,500 car repair bill. You commute to work every day and you have no choice but to fix your car. Understandably highlighted, you are charging your credit card. Your car problem is solved. But now you have a balance of $1,500 at 20.42 percent APR. You didn’t plan to add another recurring expense to your budget, but you’re setting aside some room and paying $100 each month toward the balance.

It will take 18 months for you to pay off the balance. You spend $246 on interest charges. This means you owe a year and a half; unless you keep charging your credit card, that is.

That’s how one big expense can add another financial burden to your plate just because you put it on your credit card.

Understand the costs: Credit card debt repayment calculation

What can you do instead of using a credit card?

What you can do “really depends on your credit score,” says Yanely Espinal, director of educational outreach for Next Gen Personal Finance, a nonprofit organization that works to provide personal finance education to high school students. Espinal is also the author of the personal finance book “Be Careful with Your Money.”

With that said, let’s examine your options based on whether you have good credit (a FICO score of at least 670).

If you have good credit

• It’s not like that Always It’s wrong to charge your credit card for an unexpectedly large charge. Especially if good credityou may be eligible for a reward 0 percent APR credit card. This type of card provides an introductory period during which no interest is accrued on your purchases. Currently, you can find cards that provide 0 percent APR for up to 21 months. If you use one of these cards, you’ll still put yourself in debt. But at least you’ll have plenty of time to pay off your debt without paying interest.

• Personal loan. When you buy something personal loanYou pay this back in fixed monthly payments. You’re likely to qualify for a lower interest rate than credit cards charge. Espinal recommends borrowing from a credit union because you can get a single-digit interest rate. “This will be the best way because the interest fees you will pay will be much, much less,” he says.

• Housing capital loan limit (HELOC). If you are a homeowner, you can withdraw money from your home equity at a low interest rate. In this case, your home is collateral for the borrowed funds, so it is crucial to understand the risks of this option. If you fall behind on your payments, you may lose your home to foreclosure.

If you don’t have good credit

• Friends or family. “If you don’t have a good credit score…start thinking about who you really trust in your life,” Espinal says. It’s certainly not the ideal option, but a loan from a family member or friend will likely be more flexible than any other loan you might get. Outline the terms of the loan and stick to them. Your relationship is collateral, so don’t risk it by not paying back as promised.

• salary advance. When all else fails, you can also ask for a salary advance if your employer offers it. This option allows you to borrow against your future earnings. Terms and requirements vary by employer; so check with your HR department to find out what’s right for you.

Remember: A payday advance from your employer is not the same as a payday loan from the corner mall storefront. Payday loans often come with costly fees, exorbitant interest rates, few consumer protections, and high risk of default. Avoid these if possible.

If all else fails

Sometimes you’re out of options and the only way to pay for an urgent expense is with your credit card. If this course of action seems inevitable, prepare yourself. You’re about to get into credit card debt.

You are not alone here. In fact, 50 percent of credit card holders say they carry a balance from month to month. Bankrate Credit Card Debt Survey. If you find yourself in this situation, your top priority should be to get out of debt as quickly as possible.

There are many ways pay off credit card debt. Choose one you can stick with because consistency is the name of the debt payment game. It’s also a good idea to stop charging your cards until you eliminate the balances.

And while you’re at it, make a plan to build an emergency fund. Savings can prevent you from finding yourself in such a predicament again.

How to jumpstart your emergency fund?

Emergency fund, as the name suggests, is savings that you use only in emergencies. Experts generally recommend saving three to six months of essential expenses.

Of course, building an emergency fund takes time and patience. This is not an easy task for many people, especially those living on a tight budget. The following steps may help you start quickly:

• Make a budget. Review your expenses and see what you can cut. This may not be pleasant, but remember that it doesn’t have to be permanent. “This is only for a few months or maybe a year (until you get to a better place with some savings),” Espinal says. He also recommends negotiating bills with your service providers to reduce your essential expenses.

• Set up direct deposit to savings. This way, when you get paid, a portion of your salary goes directly into your savings. buy one high yield savings account for this purpose to help your savings grow faster.

• Get some extra work. To be honest, I hate giving this advice. Of course, if you don’t have enough money, why not work more? But the truth is that sometimes this is a valid financial strategy. In addition to my full-time job, I worked freelance for about two years. It was tiring, but I met some important savings goals. “Most people want to save, but they don’t have enough income,” Espinal says. “Do some extra work until you reach your savings goal… and then you can go back to your regular work schedule.”

• Keep saving. Like many financial goals, increasing your savings requires consistency. Prioritize your savings until your emergency fund is in good shape. Remember that every little bit counts to stay motivated. Even $500 in emergency savings is better than $0 with a hope and prayer.

In conclusion

When unexpected expenses occur and your savings account isn’t up to the job, using your credit card may seem like the simplest solution. But dealing with the consequences in the form of expensive debt is not that easy.

Luckily, you may have better options. Whether you have good credit or not, research possible alternative solutions before getting your credit card. Once your emergency is taken care of, focus on increasing your savings to avoid finding yourself in this situation again.