Credit cards can cause people to get into debt because of the large interest, if they don’t pay the bill on time . However, even so, many claim that credit cards can be useful at certain times, for example in emergencies where the owner has no more funds. This is often a question, is it okay if a credit card is used for an emergency fund?
Can a Credit Card be for an Emergency Fund?
Before we answer that, it is better to compare perceptions about emergency funds.
Emergency Funds are funds that we deliberately save for later use at critical times, which are related to one’s survival. Emergency funds are needed because in life a lot of unexpected risks can occur. In financial planning, emergency funds have two main functions, namely:
- Reserve funds , for example, reserve funds in the event of termination of employment (PHK).
- Unexpected expense , medical expenses due to illness or accident.
Usually people who use credit cards for emergency funds are people who do not have a backup of emergency funds to use when unexpected things occur.
Credit Card Facility
During an emergency, a credit card can be used in 2 different ways:
Ordinary Credit Card
This method can be done if the emergency thing we can pay by using a credit card, such as medical expenses at the hospital. If we use it as usual because of a lack of emergency funds, we only need to pay the bill at maturity. If you are late paying your bills, there will be consequences of late penalties, the cost of each bank is different from your total credit card bill, with a maximum fine of Rp150,000. And if you only pay the minimum, you will be charged interest for the remainder of the bill at the time of maturity next month. This is what causes people to be often in debt.
This method is usually done if the emergency needs cash, such as household necessities and medical expenses at a doctor or health center that does not have a credit card machine. This cash withdrawal facility is used by many people quite often, because cash can be used anywhere rather than a credit card that can only be used where there is a machine. But this is precisely what makes more people entangled in credit card debt.
The costs that you must know in the credit card cash withdrawal facility are:
Cash withdrawal fees are costs that are directly charged when cash withdrawals are made. This fee is usually set at 4% of the total withdrawal or IDR 50,000, whichever is greater. This fee varies from bank to credit card issuer. The fee is to pay for the ‘services’ for using money at the ATM machine. Well, the term is machine maintenance, security and so on.
Cash interest is the interest that accumulates every month as long as the bill is still there. As before, the percentage of interest you bear per month differs between banks with a maximum of 2.95% of the total remaining cash withdrawal that you make. The interest rate has been limited by BI to a maximum of 2.95% per month or 35.4% per year.
For example, you have an XYZ credit card and make a cash withdrawal of Rp1 million. You will pay a bill of Rp1,040,000 because 4% of 1 million is only Rp.40,000. Then you will be charged interest of 2.95% of the total bill if you do not pay off the bill.
From this count, the total cost you incur is 6.95% of the total money you withdraw. It may not feel too heavy, but what if you make a cash withdrawal above IDR 5 million? Surely you will be burdened with interest.
Credit Interest Is Expensive
From the example above, you can see that the costs and interest charged by a credit card are very large if you cannot pay the bill on time.
Therefore, you really are not recommended to make cash withdrawals or credit card payments, if you cannot pay the bill at maturity. But for the emergency, it is very possible for you who do not have an emergency fund, to use a credit card first.
All you have to make sure is that you have to pay the bill in exact amount and on time so that you will not be exposed to the costs above.
Credit Card For Emergency Funds
Credit cards are only a means of payment. Is he something good or not depends on the wearer. Many people have different understandings about emergency funds. Therefore, so that you are not already in credit card debt, there is better that you have an understanding first. Credit cards can be recommended to be used for emergency funds if the emergency funds are indeed related to one’s survival, not other emergency funds, which may be an emergency according to the thoughts of some people or even funds that are not urgent at all but are considered emergency.