Every family should have an emergency fund. In fact, some financial planning gurus suggest that an emergency fund should contain 3-6 months of income.
Why? Stuff happens! Cars break, furnaces break, dishwashers break we are surrounded by convenience items that are pretty reliable, but there are just too many of them. Additionally, people lose jobs even in good times, and anyone can get sick and miss work. The bills dont stop when the income stops.
Credit cards are one way some people handle emergency expenses. When something happened, you just put down the card and paid it back later.
Unfortunately, as credit requirements have gotten tougher, that may not work. Banks have become more willing to reduce lines of credit or cancel cards. Even if you can get credit, it can be expensive.
The cost of credit has been high for a long time. Lets do a quick example:
Over the past decade, many people have gotten rid of credit card debt by rolling it into a home mortgage or a home equity line of credit. This makes sense from two points of view.
Lets look at the $5000 loan a different way. Suppose we plan to pay back the loan over three years.