Stop Using Your Credit Card Like an Emergency Fund. Here's How

This winter, my senior dogs went on a bit of a spree at their vet, and ended up costing me several thousand dollars over three months -- which was more than their designated bank account or my emergency account had to spare. So, a lot of their expenses got bounced to credit cards or credit lines, leaving me in a bit of a pickle, and putting me at risk of entering a debt cycle I couldn't escape.

It got me thinking about how many of us end up falling back on credit cards because we don't have healthy emergency funds, and I was determined to find a way out of this situation for myself -- and for you, our loyal readers.

This is my plan.

Step 1: Adjust monthly expenses

I have traditionally been the person who pays way more than a minimum balance on my credit cards or credit lines, but when I ran through my emergency savings, I realized something had to give. I had to prioritize savings again, otherwise I would be stuck using my credit cards as an emergency fund and never able to leave this dangerous cycle.

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So, I adjusted all my credit card payments to be the minimums, no matter how badly it hurt me emotionally to do so. I also went through all my regular expenses, categorized them to better understand what I was spending my money on, and cut it to the core. A downgrade to Netflix isn't a big deal in service quality, but it can sure add up in money to put in the ol' savings account, you know?

Step 2: Pay yourself first

I know you've heard this a billion times from a billion different people, but it's really true. If you put money into your savings account first, before you do anything else, you get used to not seeing that money and it's a sort of out of sight, out of mind situation.

I have never been a great saver. This was just not something I was taught how to do, as I didn't really have a financial education growing up. I was just told to save, but not how to save. The thing is, it's surprisingly easy to save if you understand your other expenses and how your budget works on a holistic level.

So, knowing how much I needed to pay the bills from step one, I set an amount that I would hold back specifically for savings. This was a reasonable sum and wouldn't put me in a predicament where I'd be constantly tapping my savings to pay living expenses.

Now, every time I get a check, I immediately put 11% in my savings account. This is the amount I've determined I can put there right now without hurting the rest of my financial world. It leaves me a little bit of free cash in case things get weird, and allows me to confidently build back my cash reserves.

In addition, my savings account is located in an entirely different bank than my checking account, so if I want to go fetch that money, it takes a lot of steps, requires several days of waiting for the transfer, and it's usually just not worth it, so the hassle alone helps keep it where it should be.

Step 3: Start focusing on the debt

Once you've got your emergency fund back to a comfortable level -- maybe it covers three months of expenses, for example -- you can focus on the debt that you have been just keeping up with. You'll want to keep adding to your savings every paycheck, but you might cut your contribution back some, or maybe during step two you managed to pay a credit card off with the minimum payments and have a free $50 per month to do something else with.

Whatever the case, you can choose your debt payoff method: debt snowball or debt avalanche.

Snowballs start by focusing that extra $50 on the smallest debt balances first, and paying that down before moving the extra money plus the regular payment from that first balance to the next one. The avalanche method is similar, but instead focuses on the highest interest rate balance. Both are valid and it will depend on your situation which one makes the most sense.

It's really important that you wait until your emergency fund is well stocked to do this part, because otherwise you'll just end up having to use your cards again when the next big unplanned bill pops up. And that's the opposite of what we want.

I just passed the HVAC stress test!

My finances are still kind of a mess from my divorce and losing a business during the pandemic, but I can cheerfully proclaim that so far, my cycle-breaking is working. This week, I put it all to the test when my air conditioner went out on a day with a dangerous heat index in my area.

Not only did my emergency savings have enough in it to cover the new thermostat that was required, it also took care of the bill from the HVAC tech and the parts that my unit needed. Now, I was lucky that it was a relatively small repair, but it was also an after-hours service, so not exactly cheap.

But it was a huge win and proof that these moves may actually break me out of the debt cycle over time. And if it's working for me, it could very well work for you, too.