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In light of the coronavirus outbreak, you may have heard the saying, "cash is king," being murmured by your family members, roommate or partner.
But before you rush to the ATM to withdraw money, most experts recommend you take a moment to evaluate your situation. Whether you use cash or credit tostock upon coronavirus supplies, your choice should come from information, not panic.
Select wanted some more insight on whether cash or credit prevails in a time of financial hardship. Below, experts responded to our questions about how much cash to carry during an emergency, as well as how to rely on credit cards so you get the most rewards for your spending.
When to use your credit card during an emergency
It's fine to use a credit card in an emergency — as long as you have cash to pay off the balance before interest starts accruing. To better guarantee this, you may want to consider using a rewards credit card with a lengthy interest-free intro period.
The Discover it® Balance Transfercomes with an introductory 0% APR period for 18 months on balance transfers and an introductory 0% APR period for six months on new purchases (after, 17.24% - 28.24% variable APR; there is a 3% intro balance transfer fee, then up to 5% on future balance transfers, see terms). This gives you extra time to pay for emergency supplies, plus you'll earn cash back on spending. It offers 5% cash back in rotating categories on up to $1,500 in combined purchases after you activate the bonus every quarter. After you reach the limit, you'll still earn 1% on all purchases.
"Using credit cards this way can help earn redeemable points or cashback rewards," Bruce McClary, a spokesman for the National Foundation for Credit Counseling (NFCC), tells Select. "Using a credit card with an introductory interest-free repayment period can help buy some additional time before the balance should be paid off."
Carrying a credit card can also be the more secure option when leaving the house, such as going on a grocery run. "It is much safer than walking around with a lot of cash in your pocket," McClary says.
When to use cash during an emergency
While credit cards can be a financially smart tool to use, sticking with cash if you don't think you can pay your credit card balance off in full makes plenty of sense — especially during uncertain times like this when your finances may be in limbo.
As a security measure, it's always a good idea to have cash on hand for an emergency in case you have a situation where you can't use your credit card, like when the balance is already racked up too high.
"For instance, what if you have medical expenses and you're running a high balance on your credit cards?" Beverly Harzog, consumer finance analyst and author of "The Debt Escape Plan" and "Confessions of a Credit Junkie" tells Select.
Carrying cash can also be essential in scenarios like natural disasters when the power may go out for long periods of time, leaving purchases of goods and services to be conducted only on a cash basis. "Without electricity to power ATMs, having a personal stash of money in your home will help you buy the essentials necessary for survival," McClary says.
How much cash should you have on hand?
The short answer: It can vary. But there is a general 'rule-of-thumb.'
"If you have a home safe, it's probably a good idea to have at least enough set aside to cover a few weeks of essential expenses," McClary says. This can mean different amounts for different individuals, whether you live alone or have someone else to support.
And experts recommend you have an emergency savings account as well. "Beyond what you keep in your home safe, you should have at least three months of net income set aside in an insured savings account," advises McClary.
Each individual has to decide what they need based on their resources right now, but a global pandemic is an especially important time to keep in mind budgeting for any health care expenses you may incur.
"I recommend having enough cash to cover copays for medical visits for each family member," Harzog says. "This is just a precaution in case the system gets backed up and they can't process your credit card. But this is only a guideline."
Bottom line
Depending on your personal financial situation, it can be ideal to have both credit cards and cash on hand during emergencies.
A credit card can help you redeem rewards while also covering your emergency expenses, but it should only be used if you can pay the balance off in full without incurring interest. And cash can be a good backup plan in case something happens to credit processing systems.
And while it's possible that electronic systems may go out in an unprecedented scenario, it's not likely. So it's not always recommended that you run to your nearest ATM and pull out all of your cash.
"It's more important to maintain as much cash as you can in your account," Harzog says. "Just have some in your wallet in case you need to pay cash for something you need.
"If you've got credit cards, this is one of the few times I recommend using them as often as you can to maintain your cash reserves," she says. "This crisis will pass, and when it does, we're all going to be busy getting our financial lives back on track. But for now, it's more about financial survival."
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FAQs
Depending on your personal financial situation, it can be ideal to have both credit cards and cash on hand during emergencies. A credit card can help you redeem rewards while also covering your emergency expenses, but it should only be used if you can pay the balance off in full without incurring interest.
Should I keep cash on hand for emergencies? ›
To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses. So if you spend $5,000 per month, your first emergency fund savings milestone should be $2,500 to cover spending shocks.
Should I carry emergency cash? ›
A true emergency will usually require you to have money, often cash, to survive (“Financial Preparedness,” 2014). Just in case the electricity is knocked out for several days, your local bank and grocery store might resort to a cash-only policy because credit card machines and ATMs won't work.
Is using credit the ideal way to provide for financial emergencies? ›
Using credit is the ideal way to provide for financial emergencies. One can be overusing credit even though he can afford to make minimum monthly payments on time. A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.
What amount do most financial experts say you should have in your emergency savings fund? ›
How much should you save? While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
Why cash in hand is better? ›
Manage unexpected expenses without stress, for example, if equipment needs unexpected repairs, cash is available without the need for financing. Minimize the risk of any market fluctuations, changes in interest rates or the need to borrow.
Is it a good idea to keep cash on hand? ›
Reasons people keep cash at home include emergency preparedness, financial privacy concerns and mistrust of banks. It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend.
How much cash to keep on hand for emergencies? ›
While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses. When you've retired, consider a cash reserve that might help cover one to two years of spending needs.
Should you have a credit card for emergencies? ›
It's fine to use a credit card in an emergency — as long as you have cash to pay off the balance before interest starts accruing. To better guarantee this, you may want to consider using a rewards credit card with a lengthy interest-free intro period.
Should I carry cash anymore? ›
Thanks to credit cards and debit cards, there is no need to carry paper money. You can buy goods and services with a simple swipe, dip, or tap of your card. This is why card-based transactions continue to soar while cash money is on the decline. However, you still need a wallet to carry your cards, right?
Advantages of using your credit card as an emergency fund
A cash back credit card could give back a percentage and provide a little relief. On the other hand, you might need to pay for your day-to-day expenses with your credit card.
How can credit hurt you financially? ›
A poor credit history can have wider-ranging consequences than you might think. Not only will a spotty credit report and low credit score lead to higher interest rates and fewer loan options, it can also make it harder to find housing and obtain certain services.
What's one good way to financially plan for emergencies? ›
Start an emergency savings account.
Saving even small amounts like $5 or $10 a week is a good place to start. Make a budget to estimate monthly income and expenses. Reduce debt by making regular payments of at least the minimum due and pay your bills on time to maintain a good credit rating.
Is a $5,000 emergency fund enough? ›
For many people, $5,000 would be inadequate to cover several months' expenses in the event of job loss or an expensive emergency. If that is the case for you, $5,000 would not be considered an overfunded account.
Is $10,000 a good emergency fund? ›
When asked how much money they'd need to save for a financial emergency to avoid additional stress, 40% would feel comfortable having a modest amount — below $2,500 — set aside. 21% say they'd need at least $10,000 saved to feel secure.
Do you really need a 3 month emergency fund? ›
Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000. This might not seem like a lot, but it's just a temporary buffer while you pay off that debt. Fully funded emergency fund: Once that debt's gone, you need a fully funded emergency fund of 3–6 months of expenses.
How much cash should you have on hand for emergencies? ›
In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses.
Should I keep emergency fund in cash? ›
Generally, keeping your emergency savings accessible and liquid can be a good idea—in addition to avoiding risky investments that could lose money. To avoid dipping into your emergency savings, it can also make sense to separate it from your spending money and other types of savings.
How many days cash on hand should a hospital have? ›
S&P's categories correspond to a range of days cash on hand. For example, “strong” levels correspond to 150-200 days for systems (160-205 days for stand-alone hospitals) and “adequate” levels correspond to 100-150 days for systems (110-160 days for stand-alone hospitals) (See Methods for the complete list).
Should you keep cash at home during a recession? ›
While volatile financial times (inflation, recessions, and fluctuations in supply and demand) may cause some to feel as though the best place to store their money is under the mattress: it is not a recommended practice now, or at any other time.
