My Friend Used a Credit Card for a Surprise Expense Instead of Her Emergency Fund. Here's Why That Was a Mistake

When your job is to write about financial matters, your friends sometimes come to you for money-related advice. And not so long ago, a friend of mine ran into a jam and wanted my input.

Her car had some sort of issue that was going to result in a $4,000 repair. It's an older car, and she didn't want to put the work into it. But seeing as how vehicle prices are soaring and the average monthly car payment hit a record high of $730 earlier this year, according to Edmunds, she figured it was better to make the repair and hang onto her car for another year or two rather than deal with taking on an expensive new auto loan.

The good news is that my friend had the $4,000 in her savings account at the time. The bad news is that she was really scared to take that withdrawal. So despite me urging her to do so, she wound up putting her expense on a credit card instead. And that was a mistake.

Tapping emergency savings is generally the best bet

The reason my friend opted to use a credit card for her car repair rather than raid her emergency fund is simple. She was worried about her savings balance getting too low, and removing $4,000 from her bank account would've left her with less than half that much after the fact.

Now, it's worth mentioning that the typical emergency fund should ideally contain enough money to cover three full months of living expenses at a minimum. My friend's savings balance wasn't close, as she could barely cover a month of bills with what she had. But still, I told her that using her credit card was a mistake for one big reason -- it would cost her money in interest.

My friend had a good plan. She was going to charge the repair on her go-to credit card and then apply for a 0% interest credit card and transfer the balance over. But when I pointed out that 0% interest rates generally only last for about a year or a year and change, and that the rates on those cards can be exorbitant once those introductory periods run out, she realized the flaw in her plan.

She decided to carry the balance on her go-to credit card for the time being and see how well she'd fare at chipping away at it. Only after a couple of months, she realized that she wasn't really making much progress, and that she really stood to accrue a lot of interest on that balance.

As such, she took my advice a few months after the fact and used her emergency savings to pay her car repair off in full. She's now working on replenishing her emergency fund -- and building up a higher balance than what she started out with.

Don't be afraid to tap your cash reserves

Many people, like my friend, are scared to raid their emergency savings because they don't want to see their balances dwindle. And that's understandable.

But the whole purpose of having an emergency fund is to get bailed out of a jam like the one my friend was in without having to resort to accruing interest on a credit card balance. So I'm really glad my friend changed her mind shortly after racking up that balance, because she was able to minimize the amount of interest she was charged.

If you have an emergency fund, it's generally best to tap it before resorting to credit card debt. Otherwise, you might end up losing a lot of money when you have the cash sitting there in the bank.