Financial guru, Dave Ramsey, always preaches the importance of preserving an emergency fund. Unfortunately, in my case, the pressure to not spend any of my savings prompted me to swipe my rewards credit card instead.
The need to save emergency cash was so heavily ingrained in my mind that when I was faced with an actual financial emergency, I refused to part with the savings I had accumulated from step one of Ramsey’s Seven Baby Step Program.
A few weeks ago, the passing of my grandmother whom I was very close to prompted me to travel overseas for the funeral — and a round-trip plane ticket on such short notice cost$1,600. Fortunately, at this point in the debt reduction plan, I’d saved a respectable $1,700 — about a month and a half of expenses.
Even so, I did what many people likely do when stressed and pressed for time: I put the plane ticket on my rewards credit card.
Clinging to My Emergency Fund Led Me Into Credit Card Debt
I clearly had enough money to cover my airfare in cash, but it took months for me to develop an emergency savings fund of this level, and the prospect of losing it all in a single purchase made me stumble.
In the moment, using a credit card felt more reassuring and safe since I’d still have emergency cash to fall back on should I get hit with yet another unexpected financial expense.
Well, Dave Ramsey says, “Anytime you’re using plastic, you have a tendency to spend more across the board — especially when you’re using a credit card.”
So now, I have a credit card balance of about $2,000 (this is the rewards credit card I also use for gasoline). Coming home to see such a massive figure looming on my account left me resigned to pay it off over a few months, so I wouldn’t feel such a huge loss.
Eventually, I snapped back to my financial reality.
Emergency Cash: What Is It Good For?
As I previously mentioned, I considered paying off the charge over the course of about three months. I even went so far as to ease the sting of the whole card-swiping mishap by telling myself that I earned $16 by using my rewards credit card. However after a little math, I found that the $1,649 balance after finance charges at 9.99% across three months would cost me $27.53 in interest, thereby negating my cash back rewards in the first place.
I had to accept that my airfare purchase warranted the use of my emergency fund, and I’ve since used my savings to pay off the charge in full for a few reasons:
1. No Interest Charges
2. Less Debt
The closer my credit card balance gets to zero, the more mentally and physically at ease I am. In fact, the American Psychological Association found that 75 percent of Americans claim that money is the biggest stressor in their lives.
By crossing this debt off my list, I’ve saved myself from agonizing over it for the next few months or even years.
3. Breaking the Credit Card Habit
Avoiding old credit card habits is the most sustainable way to minimize credit card debt. One purchase today can easily turn into three purchases next week if you’re not mindful.
Plus, Dave Ramsey always reminds his followers of the pain response associated with spending cash. The feeling may leave you sick to your stomach, like how I responded to the thought of losing my emergency savings instantly, but this negative response is what’s needed to deter unnecessary spending.
“The perfect time to use your emergency fund is for a massive financial cost that you didn’t expect and that was out of your control,” shares Stephanie Halligan of The Empowered Dollar.
While it was painful to let go of over $1,649 in cash, I can be reassured that the emergency savings I diligently toiled to grow has now served its purpose.
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