Cash or Credit Card: Which Should You Use for Emergencies When Travelling?

When you’re in a financial bind when travelling should you use cash or credit card to pull you throught? Cash is the better option because it doesn’t affect your credit score or cost you high-interest rates. You can use cash to cater to emergencies like unexpected car rental fees, ride-sharing, or an extra night.

But we can’t ignore the disadvantages of overreliance on cash, especially when traveling abroad. The situation may need more money than you have on you. Therefore, a credit card can save the day. Despite increasing your debt risk, does it have any benefits whatsoever? What alternatives are there in such circumstances? Read on!

When Credit Cards Look Like the Better Option

A travel insurance policy will meet many needs that may arise when you travel, such as flight delays and lost luggage. It may even reimburse your money if you cancel the trip altogether. However, insurance doesn’t cover all emergencies, so you need alternatives.

As much as the world is moving towards a cashless society, there are still instances where a little cash can save lives. For example, you may be in a medical emergency in a place without an ATM.

The crisis starts when you run out of cash. Or, the limit you can carry abroad is too low to cater to emergencies. You’re left with two options when that happens: get a personal loan or use a credit card.

Personal loans are attractive because numerous lenders can cater to you, and the payments are in installments. It’s also an option when you have high credit card debt. But a loan may cost you more because of the origination fees, interest rate, and debt risk. That’s when you decide to turn to credit cards.

Emergency credit cards are a quick solution when you don’t have the cash to cater to an emergency excluded from your travel insurance. It’s tempting to use a credit card in every emergency. One, many credit card companies are willing to give you one. Two, you can use it multiple times, unlike a personal loan. The features and incentives below may also entice you to use a card.

0% Welcome APR

The credit card provider might welcome you with this offer. It removes the interest rate on your card; hence, you can borrow money at 0% up to the card’s limit.

A card with such an offer could be a good source of quick funds when you’re cash-strapped and sure you can repay the balance shortly after your emergency. The offer can last about 18 months, which gives you even repayment time.

A High Credit Limit

Emergencies can cost you as much as $50,000 or more. You’ll probably not have that in your wallet, and using your credit card will be the only option.

Redeemable Points

The offer to earn points with a cash-back guarantee is attractive, especially if you travel often. Cash doesn’t offer such benefits.

Emergency Assistance

Depending on your credit card provider, you might get more than just money to solve your problem. With some premium cards, the provider may send money when you’re stranded. Others even assist with arrangements for food, transport, and medical care.

The Danger of Depending on Credit Cards in Emergencies

At the back of your mind, don’t forget about credit card debt. It’s a problem that can ruin all your credit options, as your future credit score will reflect your payment history and debts. Sometimes, even the number of credit checks done in a year can signify your debt potential.

Remember, you have no control over the amount you spend during emergencies. Therefore, you risk going beyond your limit and incurring a balance you can’t meet monthly. That’s when the interest rate starts multiplying, and before you know it, you need a loan to consolidate credit card debt. 

Alternatives to Cash and Credit Cards: Create an Emergency Fund

The beauty of an emergency fund is that you’re in control of how much you can put in it, and it doesn’t only cater to travel emergencies. Here are some tips.

What’s Your Goal?

It could be to save as low as $500 or $1,000. Think about how much you spend on average because of unexpected expenses. 

Use a Separate Saving Account

It separates your fund from the money set aside for daily expenses. 

Set Up Recurring Transfers

You might forget or run out of money before setting aside savings for your fund. Therefore, an automatic recurring transfer sends money to your emergency account on payday.

The worst that could happen during an emergency is the inability to meet your financial needs. It’s worse when you’ve run out of cash on a trip away from home. Travel policies don’t cover all emergencies, so you can’t reach out to your insurer. 

At such times, you may have to use your credit card. If you must use it, repay the balance after your trip to avoid high-interest rates and fees. After your trip, consider creating a fund for future emergencies.

 

Feature Image by Lukas from Pixabay