Four Alternatives to the Emergency Credit Card

09-Feb-2010

Many people in the UK keep a credit card just for emergencies, but it can sometimes be too tempting to have between several hundred and several thousand pounds at your disposal, and extra spending on a credit card 'here and there' can quickly result in unmanageable amounts of debt unless you keep a careful check on what you use it for.  Here are some alternatives to having an emergency credit card burning a hole in your pocket.

1. Get a prepaid credit card. 

Many card providers offer a prepaid credit card that you use on a top-up basis, meaning that you only spend money that is actually yours to spend.  Using a prepaid credit card has the added advantages of avoiding credit card-related debt-traps such as having your credit limit raised without your express consent and having high-interest credit card cheques sent to you through the post.  Top it up with perhaps 20GBP or 40GBP each time you are paid until you have a few hundred pounds on standby for when you need it urgently.  Don't pick a card that charges you a monthly fee, because you might not need it for several months.  Do bear in mind that you will usually be charged for withdrawing money at a cash machine using a prepaid card, so keep transactions to an absolute minimum.  Apply for one today through Virgin.

2. Consider a second current account. 

Open a free current account with a small overdraft limit (make sure that you keep it to around 100GBP and say no to a 'buffer zone' where you could exceed the limit but are charged expensive fees for doing so). Keep your emergency card in a safe place, separate to the PIN, for use if your usual card is lost, stolen, or swallowed by a cash machine and you are unable to get to a bank branch.  Unlike a credit card, the interest rate on your overdraft is unlikely to fluctuate, and it will be generally much, much lower than the rates charged on credit cards.  You are also not charged that additional penalty fee if you have not made a repayment within a month - just make sure you keep that limit low, or even better, fund the account and stay in credit!

3. Get an Instant Access Savings Account. 

This does not solve the problem of being without cash should you lose your bank card outside of branch opening hours, but gives you the flexibility to be able to access your money, the security of keeping your money safely in the bank and the added advantage of earning interest on your savings.  Granted, you would earn a higher rate of interest if you agreed to lock your money away in a restricted-access account, but you could perhaps look to have one of these as well, for the longer-term savings.  Pay a small amount into the account as soon as you are paid, even 15GBP a month will give you something to fall back on if you need money quickly.

4.  Save 1 Pound each day. 

This is for those who are disciplined enough not to dip into cash savings unless absolutely necessary.  If you only lose your card once in 3-month period, this gives you a potential stash of 90GBP of emergency cash.  Keep the money in a container without easy access, a piggy bank would do the trick!

Click here to read our guide to How to Save 50GBP per month. A few lifestyle changes will leave you with a bit more cash - which could be used for a useful emergency fund!