emergency funds. While the idea of having an emergency fund is mostly agreed upon by everyone, where one parks the emergency money often results in different responses. In general, and for small amounts, a combination of a separate savings account and fixed deposits is enough.
If you want a larger corpus set aside for emergencies, then even debt funds can also be added to the mix. But these days, many youngsters have taken the idea of emergency funds a step further. For reasons best known to them, they often treat their credit card as an emergency fund! But is it a wise idea? To consider a credit card as your primary emergency fund? No, your credit cards should not be a replacement for having a standalone emergency fund.
It is true that credit cards can come in handy in case of small financial emergencies. But after a while when your card bill comes, you will have to pay it back. So, credit cards only help you manage liquidity on a short-term basis.
And at max, cards will allow you about 30-40 interest-free days after the transaction, after which you will have to pay back the dues. And if you can’t pay it in full, then you will incur heavy interest of almost 40% per annum on the outstanding amount.
Also Read: CIBIL score: Using multiple credit cards? Be mindful of these 6 key points So eventually, when the bill becomes due, you will need to find money to pay back the credit card dues. Let’s take a small example to understand how this approach can put you on the edge.
Suppose you have decided to treat your credit card as an emergency fund. And for this reason, you have any savings earmarked exclusively for savings. Now imagine a situation, where you had to pay ₹2.5 lakh for emergency medical treatment (which was not
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