You've likely heard credit card advice like "don't carry a balance" or "don't spend up to your credit limit." In normal times, these rules serve as guardrails to keep you from falling into debt or racking up interest charges.
But what if you're facing a financial emergency? Maybe a layoff forces you to rely on your credit card for living expenses, or a trip to the emergency room leaves you with a bill you have no other way of paying. In cases like these, don't be afraid to sidestep typical credit card advice if you need to. The important thing is understanding the tradeoffs, so that you can make informed decisions and minimize the impact on your finances in the long run.
Here are some of the most common credit card rules and why you can break them in a financial emergency.
Rule 1: Don't carry a balance
One of the cardinal rules of responsible credit card usage is "don't carry a balance from month to month" or "always pay your statement balance in full." When you don't pay your full statement balance by the due date, credit card companies typically charge high interest rates — often over 20% APR — on the remaining balance. Credit card interest compounds daily, so the longer you carry a balance, the more interest charges you'll rack up and the faster your debt will grow.
In an emergency, it can be okay to treat your credit card like a short-term loan and carry a balance if you have no other choice. However, be strategic about it. Choose the lowest-interest-rate credit card you have access to — ideally one with a 0% introductory APR offer — to minimize interest. And make a plan to pay off your balance as soon as the emergency is over.
In short: Carrying a balance can result in high interest charges and growing debt, but you can do it if you have no other choice.
Rule 2: Pay more than the minimum toward your existing debt
If you have existing credit card debt, paying the minimum payment required by your issuer each month will keep your account in good standing. But the minimum payment is usually too small to make a meaningful dent in your balance, so you'll be in debt for a long time if that's all you're paying. Experts recommend paying more than the minimum to clear your debt faster and pay less interest in the long run.
But if you're having an emergency and need to prioritize essential expenses, like rent or groceries, instead of debt payoff, it's okay to only pay the minimum until you get back on your feet. Just be sure you're paying at least the minimum payment by the due date, or you could be hit with late fees, a penalty APR or other negative consequences.
If you can't make the minimum payment, call your credit card issuer as soon as possible to explain your situation and see what options they can offer.
In short: You should pay more than the minimum toward your existing debt so you can pay less interest and be debt-free sooner, but it's okay to deprioritize debt payoff if you have more pressing expenses.
Rule 3: Keep credit utilization under 30%
Credit utilization is the total percentage of your available credit that you're using, and it's an important factor in determining your credit score. To keep your credit score healthy, experts recommend keeping your credit card utilization under 30%. So, if your total credit line is $1,000 across all your cards, you should keep your total balance below $300 at any given time.
Luckily, the consequences for breaking this guideline aren't permanent. Credit card issuers generally report your information to the credit bureaus monthly, which means that once you pay down your balance, your score will likely recover within a billing cycle or two. Don't be afraid to charge necessary expenses to your credit card, but do try to have a plan to pay it off as soon as possible.
If you want to reduce your credit utilization without reducing your spending, you might try requesting a credit limit increase from your issuer. You can typically call the customer service number on the back of your credit card and speak to a representative, but some issuers — like Chase — let you request within your online account or their mobile app.
In short: Using too much of your available credit can negatively affect your credit score. But the effect is temporary, so don't be afraid to use your card if you need to.
Rule 4: Maximize the value of your rewards
Different credit cards have different rewards redemption options, and some options are a better value than others. For example, Capital One miles are worth at least 1 cent apiece when redeemed for travel, but only 0.5 cents when redeemed for a general statement credit or check. In most circumstances, it's far more worthwhile to use your miles for travel instead of cash back.
But don't be afraid to liquidate your rewards stash if you need quick cash, and don't worry about rewards value in an emergency. It may be better to spend 100,000 points to get $500 you can put toward immediate, necessary expenses than to save them for $1,000 of hypothetical future travel.
On a related note, don't make unnecessary purchases just to maximize reward earnings, earn a welcome bonus or utilize statement credits. It's better to leave money on the table than to spend money you can't afford.
In short: You should try to get the most value out of your card's rewards and perks in normal times, but this shouldn't be your priority during a financial crisis.
Rule 5: Don't use your credit card as an emergency fund
You should typically have an emergency fund with three to six months' expenses so you don't have to rely on credit cards to get you through a financial crisis. But if you're currently in an emergency and don't have an emergency fund, it's okay to use your card to cover your necessary expenses.
If you have a good credit score and enough time to apply for a new card, try to get a 0% APR credit card to minimize interest. Once the emergency is over, strive to pay off your balance as quickly as possible, then start building a cash emergency fund in a savings account. Even setting aside $50 a month will help you save $600 a year, which you can use for the next emergency.
In short: While it's best to have a cash emergency fund for unexpected expenses, if you don't already have one, it's okay to use a credit card to tide you over in a financial emergency.
How to choose a credit card for emergencies
If you're currently in an emergency and considering applying for a credit card to get you through, there are some important factors to consider:
- Interest rate and fees: Try to find a card with no annual fee and a 0% intro APR offer, if possible. Otherwise, choose the card with the lowest regular APR available to you.
- Instant access: Some issuers offer instant-use virtual cards, which can be useful if you need to make a purchase before the physical card arrives.
- Credit requirements: The better your credit score, the more likely you are to qualify for cards with lower fees and APRs or 0% intro APR offers. If you have poor or fair credit, you might still be able to get a credit card to use in an emergency, but it'll likely cost you in the form of higher fees or APRs.
Best credit cards for emergencies
These are some good options for an emergency credit card, thanks to their instant-use features and/or intro APR offers:
Chase Freedom Unlimited®
The no-annual-fee Chase Freedom Unlimited® (see rates and fees) offers a 0% introductory APR on purchases and balance transfers for 15 months after account opening (18.24% to 27.74% variable APR thereafter).
New cardholders also earn a $200 welcome bonus after spending $500 in the first three months, but you shouldn't spend more than you need to just to earn the bonus. You can add your Chase card to a digital wallet instantly after approval and use it at vendors that accept digital wallets. You can also call customer service to request expedited shipping for your physical card to get it in one to two business days at no extra cost.
The Chase Freedom Unlimited® is a no-annual-fee card that earns generous cash-back on everyday purchases and a lucrative welcome bonus.
- Users get a high rewards rate and strong welcome bonus
- Purchases and balance transfers get long intro APR
- No annual fee
- Travelers face a foreign transaction fee
- Few rewarding ongoing benefits
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening
- Enjoy 5% cash back on travel purchased through Chase TravelSM, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and 1.5% on all other purchases.
- No minimum to redeem for cash back. You can use points to redeem for cash through an account statement credit or an electronic deposit into an eligible Chase account located in the United States!
- Enjoy 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 18.24% - 27.74%.
- No annual fee – You won't have to pay an annual fee for all the great features that come with your Freedom Unlimited® card
- Keep tabs on your credit health, Chase Credit Journey helps you monitor your credit with free access to your latest score, alerts, and more.
- Member FDIC
Balance transfer fee
Intro fee of either $5 or 3% of the amount of each transfer, whichever is greater, in the first 60 days. After that, either $5 or 5% of the amount of each transfer, whichever is greater.
Foreign transaction fee
3% of each transaction in U.S. dollars
Blue Cash Everyday® Card from American Express
The Blue Cash Everyday® Card from American Express has a *15-month 0% introductory APR offer on purchases and balance transfers (19.49% to 28.49% variable APR thereafter) and *no annual fee.
It offers a welcome bonus as high as $200 cash back after you spend $2,000 in purchases on your new card within the first six months. Further, you can check whether you're approved with no impact on your credit score (accepting the card after approval may affect your score). If you're approved, you'll get an instant-use virtual card number you can use for online purchases before your card arrives.
The Blue Cash Everyday® Card from American Express has no annual fee and you may be eligible for bonus rewards on a wide range of common expenditures.
- Up to $264 in streaming service and meal kit credits every year (subject to auto renewal)
- High cash-back rates in popular spending categories
- No annual fee
- The best bonus cash-back categories are capped
- Has a foreign transaction fee
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Apply and find out your welcome offer. As High As $200 cash back* after you spend $2,000 in purchases on your new Card within the first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply, and if approved: 1. Find out your offer amount 2. Accept the Card with your offer 3. Spend $2,000 in 6 months 4. Receive the cash back. *Cash back is received in the form of Reward Dollars that can be redeemed for a statement credit or at Amazon.com checkout.
- No Annual Fee.
- Enjoy 0% intro APR on purchases and balance transfers for 15 months from the date of account opening. After that, your APR will be a variable APR of 19.49%-28.49%.
- Plan It®: Buy now, pay later with Plan It. Split purchases of $100 or more into equal monthly installments with a fixed fee so you don't have the pressure of paying all at once. Simply select the purchase in your online account or the American Express® App to see your plan options. Plus, you'll still earn rewards on purchases the way you usually do.
- Earn 3% cash back at U.S. supermarkets, 3% cash back on U.S. online retail purchases, 3% cash back at U.S. gas stations, on eligible purchases for each category on up to $6,000 per year in purchases (then 1%). Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit and at Amazon.com checkout.
- Get up to a $7 monthly statement credit after using your enrolled Blue Cash Everyday® Card for a subscription purchase, including a bundle subscription purchase, at DisneyPlus.com, Hulu.com, or Stream.ESPN.com U.S. websites. Subject to auto-renewal.
- Terms Apply.
- See Rates & Fees
Balance transfer fee
Either $5 or 3% of the amount of each transfer, whichever is greater.
Foreign transaction fee
2.7% of each transaction after conversion to US dollars
Capital One QuicksilverOne Cash Rewards Credit Card
While the Chase Freedom Unlimited and Amex Blue Cash Everyday both require good to excellent credit for approval, you might be able to get the Capital One QuicksilverOne Cash Rewards Credit Card even if you have fair credit. However, it'll cost you — the card has a $39 annual fee and a 28.99% variable APR with no intro APR offer. You may be able to get an instant-use virtual card number after you're approved. It's an okay option if you don't have great credit and need immediate access to a credit line, but if you plan to carry a balance for some time, you should look into lower-interest alternatives like a personal loan.
The Capital One QuicksilverOne Cash Rewards Credit Card available to those with limited/fair credit, which makes it surprising that it features an elevated 1.5% cash back on all purchases.
- Simple rewards structure with no caps or categories to track
- Available if you have fair credit
- High APR
- Has an annual fee
Highlights
Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select's editorial staff.
- Earn unlimited 1.5% cash back on every purchase, every day
- No rotating categories or limits to how much you can earn, and cash back doesn't expire for the life of the account. It's that simple
- Be automatically considered for a higher credit line in as little as 6 months
- Enjoy peace of mind with $0 Fraud Liability so that you won't be responsible for unauthorized charges
- Help strengthen your credit for the future with responsible card use
- Earn unlimited 5% cash back on hotels, vacation rentals and rental cars booked through Capital One Travel
- Monitor your credit score with CreditWise from Capital One. It's free for everyone
- Check out quickly and securely with a contactless card, without touching a terminal or handing your card to a cashier. Just hover your card over a contactless reader, wait for the confirmation, and you're all set
- Top rated mobile app
Balance transfer fee
- $0 at the Transfer APR, 4% of the amount of each transferred balance that posts to your account at a promotional APR that Capital One may offer to you
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For rates and fees of the Blue Cash Everyday® Card from American Express, click here.
