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I visit another board and commented about an emergency fund I was shocked at some of the responses I got, that they believe that I should open a line of credit and use that instead of saving for an emergency fund? Does anyone else think like that? Or do that? I'm actually shocked!! I would much rather have the CASH to pay for things then putting on credit. I couldn't imagine being out of work even a month and having to put everything on a line of credit, then trying to get back on my feet and paying it off.
 

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I remember years ago I used to cut this 'financial advisers' hair and he always said that credit cards are for an emergency. I think many people do save for a rainy day but don't really call it an emergency fund. But yeah...crazy not to try to save and use cash when you can and just depend on CC!
 

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Perhaps the people who gave that advice worked for a bank?


Why pay interest... (even if it is low) to borrow and incur debt when you are experiencing an emergency?
 

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I only keep as much cash available as I expect to spend.

I prefer to make my money work. I'm not going to have a pile of money sitting in a bank account earning nothing just on the off chance that something might happen. I invest whatever I don't expect to spend, and for me the return is significant enough to offset the risk of possibly having to temporarily borrow in an emergency. The interest rate on the credit line is lower than the return on any of our investments.

All financial decisions come with risk. We make choices based on our personal tolerance, financial security, and the types of risk we are willing to take. If you need an emergency fund, then that's what you should have. Not everyone's situation is the same though; there isn't just one "right" way to manage finances.
 

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Yeah I work in the banking industry and they are just trying to sell another product in most cases just to hit numbers its bad and I do not do that I get into trouble sometimes but its worth it to actually help people not hurt them.
 

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I have an emergency fund but I also have a credit card. It has a $0 balance and I haven't used it in years, but I have it "for emergencies." That means REAL emergencies: life or death situations, not something like losing a job and relying on an emergency fund for a few months. I mean things like must immediately evacuate the country, no time to get to the bank, ATMs are out of money, our currency isn't accepted, only accepting VISA in dollars, etc. It's free insurance - I don't pay anything for the card, and it's insurance that at least that method of paying for things remains an option for me. Obviously, the chances of using it are very low, and I haven't had to use it, but I am not willing to close the card while living in a volatile situation with family spread around the globe. But INSTEAD of an emergency fund? No way!!!
 

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So you have an emergency - and you rely on a line of credit instead of cash in the bank - and then your credit report starts to reflect your emergency - mounting debts, and so forth.

And your line of credit is eliminated because you're no longer a good risk.

Now what?
 

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Greebo, if you were referring to my post, I would pay it off within a matter of days, so I doubt it would make it my credit score.

I forgot actually - I did have an "emergency" in January 2010 - I used my credit card to get out of it, and if I hadn't had it, I would have been even more screwed than I was. I got stuck in a foreign airport with no access to cash (no ATM or bank in the only part of the airport I was allowed in, no local currency on me, and my debit card didn't work because this was a "quick connection flight" and the bank didn't know about me being in that country and thought it was fraud, cell phone didn't work in that country) during a major storm and the airline refused to rebook me (and many thousands of others, it was quite a scandal at the time, and I never got the whole refund I was entitled to).

I had to use my credit card to make a credit card phone call to my husband in Greece to let him know not to expect me for a day or two, I also had to use it to buy a ticket from there on a different airline, to buy a train ticket to get back to the airport after it reopened (the airline only paid for the transportation to the hotel and one night's stay regardless of how long the airport stayed closed and the fact that we had to get back). The whole thing ended up costing around $2000, and although I did use my credit card for all of it, I sent them an electronic payment from my checking account within 3 days and haven't used the card since.

I don't think that negatively affected my credit score.... But it sure saved me a lot of trouble since my ATM card failed and I had no other way to get money.
 

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Greebo, if you were referring to my post, I would pay it off within a matter of days, so I doubt it would make it my credit score.
I wasn't, I was referring to the idea. If you re-read what I said, I said "you have the line of credit and NO cash in the bank".

You had the cash, just no access to it in a rather exceptional circumstance that is hardly the norm.
 

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I wasn't, I was referring to the idea. If you re-read what I said, I said "you have the line of credit and NO cash in the bank".

You had the cash, just no access to it in a rather exceptional circumstance that is hardly the norm.
You actually didn't say that, you said "you rely on a line of credit instead of cash in the bank" and that to me does not rule out having money in the bank, just that you're not relying on it on short notice. :laugh:

It seems like we're having two different conversations, one about not having money stashed away at all and one about not having money that you can get to on an extremely short notice.

If you use a credit card in an emergency but could pay off that credit card in a matter of a couple weeks, I'm not sure why it would matter. There's a lot of 'ifs' in that scenario though. I'm sure Monkeywrangler and Greekisland girl have the money smarts and resources to manage it, but most people I know probably don't. Even if I don't personally disagree with the philosophy, I'm not sure I'd go spouting that advice off to random people.
 

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You actually didn't say that, you said "you rely on a line of credit instead of cash in the bank" and that to me does not rule out having money in the bank, just that you're not relying on it on short notice. :laugh:

It seems like we're having two different conversations, one about not having money stashed away at all and one about not having money that you can get to on an extremely short notice.
Yes, by "rely on" I meant "rely solely on without HAVING any cash".
 

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An incredibly ridiculous idea, to me. Rather have cash in the bank earning interest (these days- HA! what a joke, but rates will eventually rise again). Circumstances change- if you have no savings to speak of, and your income delines for one reason or another, you're in less of a position to save, and less of a position to pay back a LOC. NO NO NO.
 
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I wouldn't necessarily want a LOC, but I would have no problem keeping a credit card available for that reason. I think it depends on what you use your emergency fund for. Is it because your budget can't deal with a $400 car repair or because you need 12 months of living expenses in the bank to be able to sleep at night, or some point in between.
 

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I had a line of credit in the past as a potential source of emergency money. Once I got my emergency fund built up, I wrote them a letter to close the account.

What seemed normal 5 years ago in the personal finance arena has changed. I definitely would not have another lien holder on my house right now, but I understand people will use lines of credit (cards, HELOCs) if they have no other option.

Keep in mind, if you have a first mortgage and you want to refi quick to take advantage of a good rate, having that second lien open can get you in a jam, because you may need to show that lien satisfied to qualify for the refi even if there is a 0 balance on the line of credit account. Also, like Greebo mentioned, HELOC line companies are constantly looking at your credit to see if you have changed as a risk, and they can reduce or remove your line of credit on a moments notice.
 

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What seemed normal 5 years ago in the personal finance arena has changed. I definitely would not have another lien holder on my house right now, but I understand people will use lines of credit (cards, HELOCs) if they have no other option.
Well said, things are different now- and the point of an EF is to NOT have to use lines of credit of any kind for emergencies. I tend to think those who do not feel squeemish at the thought of using them have not taken away much the past few years, watching our economy take a nose dive and people losing their homes left and right.
 

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We have a line of credit, but really didn't feel we had much choice. We had several emergencies come up this month (all involving vehicles) and not enough money in our savings. It is an unsecured LOC so their are no liens on anything, I'm hoping it is a one-time thing of having to use it.
 
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