Here's Why I Would Use My Credit Card to Pay for an Emergency Expense

Here at The Ascent, we're no strangers to the advice that everyone should have an emergency fund with three to six months' worth of expenses saved. These funds serve to step in and save the day in the event of life's unhappy surprises -- think a job layoff, a major vehicle repair, or a sudden and necessary home repair.

Not only do we recommend that everyone have an emergency fund, but we advise that the best place to keep these funds is in a high-yield savings account. That way, you'll be able to easily access the money while also benefiting from high annual percentage yields (APYs) that grow your balance over time.

Despite all this excellent advice, you won't ever find me paying for an emergency expense directly from my emergency fund. Here's why.

Savings accounts don't reward you for withdrawing funds

Picture this: You're driving down the freeway, when suddenly, you hear a loud thunk under your car's hood. Next thing you know, smoke is pouring out. You don't know what the problem is yet, but you know it's going to be expensive. Sure enough, your mechanic hands you a bill for $3,000 to fix the issue and get you back on the road.

You could go to the bank and withdraw cash from your handy dandy emergency fund to pay the bill. Heck, you could even transfer that money to your checking account and use your debit card to pay. The problem? I don't know of any bank that rewards customers for withdrawing and spending money from their savings account. You've just experienced the nightmare of your car breaking down, and an eye twitch–inducing bill to top it off, so wouldn't it be nice if something positive could come from the experience?

Enter: Credit card rewards

The best credit cards reward you for all your spending. The best credit card for you rewards you in a way that you'll benefit from the most. If you fancy yourself a world traveler, your best credit card is likely a travel rewards card. If you prefer to keep things simple, cash back rewards might be more your cup of tea, as they can be applied directly to your account to lower your balance. From airline miles and hotel points to cash back, to even more niche benefits like store-specific rewards or discounts on gas, credit cards offer just about any style of reward your heart could desire.

But what does all this have to do with an unexpected emergency expense? It's simple: Instead of taking money directly from your emergency fund to pay those evil, but necessary, unexpected bills, lean on your credit card instead.

Say your favorite credit card is a cash back card that gives you 2% back on your spending across the board. If you use that to pay your $3,000 mechanic bill from our scenario above, you've just earned $60! You could apply that $60 to your bill to bring the cost of your repair down to $2,940, OR you could treat yourself to a nice takeout meal and bottle of wine to cheer yourself up about the whole car breakdown/expensive emergency repair situation. Whichever option you choose, you can be sure it's better than simply withdrawing $3,000 from your savings account to pay your mechanic, with nothing to show for your troubles.

An important stipulation

Hopefully I've convinced you that using a credit card to pay for your emergency expenses is the way to go. There is one very important stipulation to this advice, however.

You should only break out your credit cards to pay for an emergency expense if you already have the money sitting in a bank account ready and waiting. That's because you'll want to use those funds to quickly repay your credit card balance. You don't have to do it the same day, but you should definitely do it before the payment due date on your credit card statement arrives, as interest will begin to accrue immediately after that. And if there's one feature credit cards are not known for, it's consumer-friendly interest rates.

The current average interest rate on credit cards is 21.59%, according to the Federal Reserve. Carrying a balance forward from month to month (particularly a large balance) will make your debt more expensive over time, potentially trapping you in a dangerous cycle of debt. For a $3,000 credit card balance at the current average rate, if you paid $200 per month toward your debt, it would take you 18 months to pay it off completely. Over that time, you'd accumulate a total of $527.86 in interest. That's WAY more than you could ever hope to earn from even the best credit card rewards programs.

Having an emergency fund is still the key

So you see, this method only works if you first save up an emergency fund before laying down your credit card. It's not in any way a shortcut to suggest that saving an emergency fund isn't important and you can just charge all your surprise bills on a high-interest credit card instead. If you want to reap the benefits of credit card rewards when dealing with life's sometimes-cruel jokes, just make sure to pay off your balance before interest swoops in and nullifies your rewards.