Use Your Credit Card as an Emergency Fund?

A few months back when I wrote about how our small emergency fund saved us, No Debt Guy commented on how having an emergency fund in cash may be counterproductive. Here is what he said:

I have often wondered if having an emergency fund is the best way to pay off debt or is it counter productive?

For example if you are carrying at credit card balance of $2,500 and have $2,500 in your emergency fund you would be better off paying off your credit card and rebuilding your emergency fund.

What if you have an emergency? You can still take a cash advance from your credit card and you are no further ahead.

This does take some serious discipline, but you will save interest costs.

He does make some interesting points. However, I feel that one needs to be SUPER cautious with that type of system.

Most of you are probably in some type of debt. It’s why you’re here. You’ve probably overspent with credit cards and bought things that you didn’t need. I know I have. So, shouldn’t your main goal to be rid of credit cards forever? Like Dave Ramsey often says, “no one EVER told me they got rich by using credit cards”. I have to agree with that point. When I was using my credit card that gave me cash back, all I could think about was hitting that $50 mark so they could send me a check. So, I would spend more money to earn 1%-3% back. Talk about counterproductive! There was no way I was going to get rich by playing that stupid game.

So, I figured I would come up with a few reasons why it may be counterproductive to use a credit card (or any other line of credit) as an emergency fund. Here are some things to consider:

You May Redefine What an Emergency Is

It’s been said before that using a credit card makes you susceptible to spending more. So, wouldn’t using your credit card for an emergency be the same thing? If you car breaks down and you only have $1,000 to fix the problem, wouldn’t you shop around? I know I would. However, if I were using a credit card I would be more likely to just give in to the initial price and pay it. It’s only on a credit card, right?

I think you may also redefine what an emergency fund is. For example, would you typically use your cash emergency fund to pick up a small amount of groceries if you are out of grocery money for the month? Probably not. But if you have that credit card to fall back on, you might just head to the store when you may have some things to eat at home. If you are like me, you would probably pick up more items too!

You’ll Miss the Experience of Paying With Cash

Most people say that it’s harder parting with cash than it is using a credit card. I’m a little more skeptical but I still think it’s true. However, I think having a cash emergency fund makes you learn to handle money better. I mean, you got into credit card debt by using credit cards. How is still using a credit card in emergencies going to make you any better at handling money?

* * *

Personally, I love having a cash reserve. It just makes me sleep better at night knowing that I can actually hand someone cash if I have a financial emergency. Handing them a piece of plastic would be much harder to handle knowing what I’ve been through financially.

How about you? Cash or credit?

Packing Lunch For Work Just Got Easier

Over the past two years of reading personal finance blogs, I’ve seen plenty of articles on packing lunches to save money. As much as I love the idea, I just couldn’t make it work. I absolutely HATED packing my lunch. Every time lunch rolled around, my sandwich was the soggiest thing I ever touched. It was disgusting.

It was so disgusting, I often found myself heading out to Subway or the local pizza shop for lunch (even with a soggy sandwich in the fridge). I was averaging about $7 a day and that added up to about $140 a month. Talk about a budget buster! Peer pressure also played a role but that’s no excuse.

Well, I am here to say that I found a solution. I started taking everything for my lunch in separate pieces. In other words, I assemble my sandwich at work and not at home. Wow, does that make a huge difference! I love packing now. I’m not sure how much my colleagues like the mayo, cheese and ham in the fridge, but they will have to live with it (and hopefully not eat it).

All I know is, we will now be saving about $140 a month on me not eating out for lunch. Also, I will be able to take leftovers to work once I start working in DC. You always need some variety!

Have any tips on motivation for packing your lunch? Sometimes it’s not as easy as you think….

Debt Update: February 28, 2010

February was a short month in terms of days but a big month for debt repayment. We managed to eliminate $2,532.86, our biggest month ever! This was in addition to replenishing our emergency fund (about $800) that was depleted from paying some estimated taxes in January. We feel great about what we were able to accomplish this month. It’s even more uplifting knowing that in the next few months, our income is going up and our expenses are going down thanks to the new job.

We were able to pay a big chunk on the personal loan in February and by this time next month, it will be gone. We also started paying on the family loan for personal reasons. We just wanted to get started on it and the family member could also use the money due to some unforeseen circumstances. Another great reason not to get into a family loan. Now onto the spreadsheet!

Miss Me?

Hey everyone, I just wanted to let you know that I’m alive and well. Over the past few weeks, not much has happened in our financial lives so I figured I wouldn’t bore you with random posts. I typically just sit here in my home away from home and talk to my wife via Skype. Not much excitement there! Obviously, we are still paying off debt but I don’t really feel like writing a post titled “I paid $100 on our personal loan today!”

I could write some more basic things if that is what you are looking for. Any thoughts? Do you want more posts on “how to budget” or “why you need to save”? I just feel like so many other bloggers are writing about that stuff and you are probably getting tired of it. So many other bloggers are beginning to “write for the search engines” and I just don’t want to do that. I feel like I would alienate you.

So, I am reaching out to you, my readers. What do you want to see here on the site? I definitely want to stick with the idea of transparency in our financial life. So, is there something that you want to know about us?

Debt Update: January 31, 2010

January was a fairly good month for us. Even after depleting our emergency fund and them pumping it back up to $1,000, we were still able to pay off over $1,400 in debt. Also, keep in mind that the $1,400 we paid off is only the reduction of principal and doesn’t count the interest we paid. So technically, we are making over $2,000 worth of debt payments per month.

For those of you who don’t read my weekly article over at Frugal Dad, I recently announced that I got a new job in Washington, DC. The job doesn’t start until mid-April, but it will be a HUGE income boost for us. This new job will increase our income by approximately $4,000. I will be doing the same job but since I will now work in Washington, I get a cost-of-living pay increase. Another great thing about the new job is that we will no longer have to pay rent in Pennsylvania. The new job will help us cut our expenses by $4,800!

Since we have already been living on less than we make, ALL of these new earnings and savings will be put towards debt. That is an $8,800 new shovel! It will feel great knowing that we will be able to pay things off almost twice as fast.

Anyway, here is what we paid off for January:

Friday Feed Frenzy – The Debtor’s Mind

Well, it’s been a little while since I had a roundup so I thought I would get back in the mix. It’s tough for me to read as many blogs as I used to. I can’t read blogs at work like many other bloggers can. Frankly, it stinks. I feel so much more disconnected than I used to be. I hardly Tweet and I very rarely comment on other blogs. Hopefully, I can find a new routine that will allow me to do more of that. We’ll see!

In other news, I will be starting a series on the blog called “The Debtor’s Mind”. The series is going to be about the things that we as debtors tell ourselves to make us feel better. So, if you try to rationalize why you are in debt on a daily basis, I want to hear what your thoughts are. Send me an email with some topics and I will give you credit if you so desire. I already have a few thoughts but I am curious to hear yours!

Must Reads

Family Member Loan: Three Reasons I Would Reconsider – This is a guest post by yours truly over at My Super-Charged Life. As you know, I owe a family member over $16,000 and in this article I talk about how I will NEVER do it again.

How Conan O’Brien Wants You To Succeed. Flexo has a guest post over at Budgets Are Sexy that has some great thoughts to take from Conan’s last night on the “Tonight Show”. I hope Conan comes back even stronger in a few months. He deserves it.

7 Money Lessons From Monopoly. Ray from Financial Highway shares a great post on the financial lessons you can learn from the classic Monopoly game.

Should I Save For Retirement While In Debt? Here is my weekly post over at Frugal Dad. I explore the question of stopping retirement savings to get out of debt. Is it really worth the savings that you are missing out on?

Other Great Reads