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My wife and I swore off revolving credit about 2 years ago and have since paid off all our credit card debt and closed all but one credit account. Reading various sources in print and online, I've noticed that opinions differ on whether it's a good idea to hang onto a credit card for emergencies (that's what the emergency fund is for, right??). And as a followup, if we do keep the one card account open, do we need to purchase something every month (or 6 months or year) to keep the account from getting closed or put on hold for not being used? |
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I take a stronger position than most on this issue, and I believe that one should never keep a credit card around just for emergencies. An emergency is precisely the wrong time to go into debt, and like the previous comments, you might have to use the card other times just to keep the account active and fees off your back, which totally defeats the purpose of an "emergency card." If you have 3-6 months of household expenses in an savings account linked to a debit card, or an account you can easily write checks from, this will be more than enough to handle 99% of all emergencies. And if a REALLY big emergency happens, like a $50,000 medical event, that one little plastic crutch of a credit card will not really help you anyway. |
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It sounds like you've fixed your relationship with credit card debt if you've successfully paid off your debt, so that's a great thing. As long as you continue to view credit in the same way, then yes, it's better to have a credit card than not. Regarding your comment on the emergency fund, a credit card can be an emergency source of funds, but again, it's better to have an actual emergency fund (money in the bank) than to go into debt in an emergency. You're also correct to realize that issuers are canceling accounts, and a dormant account is a money loser for them. Charging something periodically and paying the balance in full each time is a wise thing to do, especially if it's your only card. |
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I agree with MBH but would add for the uninitiated, that if you keep a card, it should be a free one, with no annual fee, and would reiterate, carry no balance on the card. One way to keep it active is to use it for payment for something online, as I do with the Wall Street Journal. They charge the card a couple of times a year, I pay the bill completely when it arrives, and I don't have to worry about the company canceling the card. Great job, Josh! |
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I agree With Dr. Dean. As long as you have a credit card without an annual fee and you have paid off the balance on it, you should absolutely keep it for emergencies. It seems that you have conquered your battle with credit card debt, and I congratulate you for that. If you charge something small each month to the card, you will not only continue to build credit but possibly even some rewards, depending on the type of credit card you have. I'm a firm believer that, if used properly, credit cards can be tools for your benefit ... not just a crutch to lean on for reckless spending. |
