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A second option to the liquid treasure chest
My response: Absolutely.
It’s not ideal to go into debt in times of emergency, which is the whole point of having a liquid cash treasure chest in the first place. (Note: Ideally, this cash treasure chest should hold anywhere from 3–12 months of liquid funds.)
However, most people don’t have the luxury of holding this amount of cash that often sits and burns in a savings or other easily accessible low-interest-bearing account.
An Alternative Strategy: Credit + Cash
Maybe your goal is to have a one-year emergency fund, and you currently have six to nine months saved (kudos to whoever this is). If you have a credit card with a limit covering the other three to six months, you can continue saving, but you do officially have a one-year emergency fund – one part in credit the other part in cash.
It’s not likely you’ll need a one-year emergency fund if you tend to stay employed (or unemployed for short stents of time), but it’s nice to have in case of catastrophic incidents.
For Those With One Year Emergency Funds
Instead of keeping your money in a savings account that will most likely have negative interest rates, keep some of your liquid treasure chests in an investment-bearing account, so your savings can earn more in the time being.
The Caveat
If you use your credit card as your emergency fund, make it a practice to pay it back as quickly as possible, so you can avoid paying interest fees and, in the end, spending more than you initially borrowed.
6 ways to pay less interest on the debt you borrow from your credit card:
Utilize a zero percent interest credit card
Take a loan from yourself for thirty 30 days or the equivalent of one billing cycle.
Use your liquid emergency fund to make payments on your balance to keep the interest payments lower.
Decrease your expenses temporarily to help make up for the interest you’ll pay in return for utilizing the credit card as your emergency fund.
If you have a rewards card, use the rewards points as cash towards the credit card balance.
Put part of your emergency fund in an investment account, so you’re earning interest on it, which could cover credit card interest fees.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.