Imagine the following scenario. Although it’s horrible, it probably happens every day:
You get a call from the police in your hometown. Your sister’s been in a horrible accident. She’s critically injured and may have only hours to live.
Clearly, you need to get home as soon as possible to see her. You drive immediately to the airport and find the first flight out. You book the ticket. It’s a steep price. You pull out your debit card, and you freeze.
How much money is in the account? Your debit card comes back denied. You remember cancelling all of your credit cards last year to improve your finances. You have money in your ING account, but it’ll take days to get to.
What are you going to do? Borrow cash from a family member? Apply for new credit on the spot? Get in the car and drive like hell?
Conventional wisdom says that you should never use your credit cards for emergencies. If something comes up, you’re supposed to use whatever cash (i.e. checking account) you have available to avoid spending money you don’t have.
That’s all fine and good, but if you’re being smart, you’re not keeping your money in checking. You’re taking advantage of AT LEAST 1% interest rates by using an online savings account (aff) or similar kind of setup.
And fortunately (stops you from being stupid) or unfortunately (hard to get to on a whim), you need 2-3 days to transfer the money into checking.
Of course, there are other alternatives to avoid these situations like online money markets, which give you access via debit card and check. But many people opt for pure savings.
So what do you do? You have a $1,000 plane ticket to buy and no money to buy it. You put the damn thing on a credit card and pay it off when you get home because you have $5,000 sitting in a savings account, that’s what.
And by golly, you don’t worry about “over-spending” or using money you don’t have. Because you do. You’ve been saving it for just such an occasion, it just happens to be protected from your own whims by being hard to get to. But when push comes to shove, you need to be able to spend.
So don’t feel bad about not cancelling all of your cards and keep at least one around for times like these.
Just remember that a sale on TVs doesn’t constitute an emergency. (Unless you’re getting half off, because seriously–half off is a deal you can’t pass up). 😉
Photo by Andres Rueda
Fiscal Fizzle 
But if you’re the kind of person who DOES see TV sales as an emergency (and lots of people would), you might be better off finding a way to earn interest AND keep access to your savings and ditching the credit card altogether (assuming you have reasonable savings). It’s not impossible to find a checking account that gives interest (American Bank offers 1% and it used to be higher) and some banks also offer savings accounts that give you both interest and access to your money via a debit card.
Yes, exactly. 🙂 It’s a tough balance between easy access to savings (which you could use for said TV sale anyway) and credit cards. Up to the individual to know their own vices in the end, right?