'I know I'm not broke': Shaquille O'Neal's credit card was once declined at Walmart after a big purchase in an emergency. Here’s what happened, and how you can avoid this inconvenience

Try not to rely on credit cards for emergencies

When it comes to emergency expenses, such as sudden car repairs or unforeseen health expenditures, many Americans find themselves unprepared for the situation. According to Empower, 21% of Americans surveyed said they have no emergency savings at all, while 37% said they could only afford an emergency expense of $400 or lower.

Without the resources to pay for an unexpected cost, many Americans will reach for the most accessible form of borrowed money they have: credit cards.

Nearly 9% of Americans have applied for a new credit card just to pay for a financial emergency, according to a survey from Debt.com. Meanwhile, 36% of Americans surveyed in 2024 have more credit card debt than emergency savings, according to Bankrate data.

This makes credit cards a very quick and easy way to cover an emergency expense, but credit cards are not designed for emergencies. Most credit card providers and banks, as part of their fraud-prevention initiatives, will block transactions that seem suspicious or don’t fit an established pattern of spending. Many credit cards also have spending limits, which can make your credit card a lot less handy if the charge is significant.

But most importantly, credit cards can be expensive. As of August 2024, the average interest rate on a commercial credit card was 21.76%, according to the Federal Bank of St.Louis. This exorbitant rate is one of the key reasons to avoid using credit cards for emergency needs, as the cost of such unexpected purchases will increase significantly when interest rates are applied.

Instead, consumers would be wise to plan ahead and prepare for the unexpected with an emergency fund.

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Prepare for emergency expenses with a rainy day fund

Emergencies are often impossible to predict and, in some situations, can be quite costly. If you happen to lock your keys inside your car, calling someone to unlock the door could cost you as much as $150, according to JD Power. Americans with health insurance wind up paying $646 out-of-pocket (on average) for a visit to the emergency department, according to the Kaiser Family Foundation and Peterson Centre on Healthcare.

Meanwhile, American homeowners spend an average of $1,667 on home emergency expenditures, according to a 2023 survey from Angi.

These expensive situations can sneak up on you, but that doesn’t mean you can’t prepare yourself for them. Saving some extra money in an emergency fund could help you prepare for any one of the emergencies mentioned above, and countless others. Many financial experts recommend an emergency fund that equals three to six months of living expenses, according to CNBC. If you’re able to create such a fund, you can access its money quickly with a debit or prepaid card instead of relying on a credit card.

However, if saving up for an emergency fund is difficult, you can consider less expensive alternatives. Interest rates on an emergency personal loan can be as low as 6.99%, depending on the provider and your creditworthiness, according to Lendingtree. For homeowners, the average rate on a home equity line of credit is between 8% and 10%, according to Forbes.

These credit card alternatives are not exactly ideal, as the interest rates included will make your particular emergency cost more. But with lower interest rates than that of a credit card, these alternatives are an option worth considering when emergency spending rears its ugly head.