So.... I'm looking for advice.

Nothing flat out stupid like bailing out of my 401k, don't worry. This summer, I took care of the last of my credit card debt. For over two years, I've been using my debit card for most things, and held cash against small emergencies.

The problem is, I want some buffer for larger emergencies. The best way I can see to do this, even at the start of a global recession, is either Master Card or Lady Visa (if you don't get the joke, don't worry) with a couple grand for max limit. I'd probably splurge a little with it at first (I do need a good .22) and then stick it in the back of my wallet and maybe put a tank of gas on it each month. And this time, pay it off that month.

So, the advice I'm asking is, am I out of my mind?

That's basically what I'm doing. I have cash out for emergencies, but most purchases are with the MC which is paid off each month. I use it for cash flow purposes, not to extend myself credit.

Just a clarifying point because the terminology can be confusing (actually, confusing on purpose) and I wouldn't want someone to get confused and make a mistake. What Izzy is referring to is usually referred to as a Money Market Mutual Fund that mutual fund companies or brokerage houses sell. These accounts are classified as investments, and technically could fall in value, and are NOT protected by FDIC.

It's so rare for these funds to lose money for their customers that when the Reserve Primary Money Market Mutual Fund actually lost money when a very big IOU from Lehman Brothers went belly up, that was arguably the tipping point that triggered the recent panic and credit freeze around the world.

To compete with these higher yielding but very safe mutual funds, banks long ago created Money Market Accounts with a name that sounds confusingly like the Money Market Mutual Funds to trick customers into thinking they are the same thing. These are bank accounts and are covered by FDIC, so if the bank goes belly up, you're fully protected up to the FDIC limit. You don't make as much interest as in a Money Market Mutual Fund, but they are very secure.

I'm assuming that you still have at least one credit card, right? Is the credit limit high enough a buffer for you?

Assuming that you have a card but the limit isn't high enough, first thing you could do is call them and ask to have it raised. However, in this climate, some customers are having their limits lowered lately so that might not work.

If that doesn't work, I would suggest that you start using the card and paying the balance off each month. By doing so, your credit report shows that you can handle credit without going hog wild and then declaring bankruptcy every seven years. Ironically, once you start carrying a balance, they become a lot more receptive to raising your limit, too, so that's an option to raise your limit. Or get a second card.

If you have a 401K account, there are rules that allow you to borrow against your balance for hardship reasons. Or you could actually withdraw that money, if you pay a penalty and the income tax. Roth IRA contributions can be withdrawn any time with no penalty.

Depending on the kinds of emergencies you're thinking of needing money for, try to have the proper insurance. Even a small medical problem can turn into a large medical bill.

I do the same as Izzy, put everything I can on the VISA Card and pay it off each month. I then use the reward points to buy RRSP's (Canadian tax deductable saving plans, with tax sheltered income; until you withdraw it). Then with my larger income tax refund I sometimes pay down the mortgage .... or sometimes I buy myself a new toy (you got to have fun sometimes). Mike

Uhm, yeah... that would have been the SMART thing to do. I am living proof that a near genius can be a sub-moron at times. :P When it comes cards, I'll have to be starting over.


You know... this is stuff they should be teaching in high school. I have a piece of paper that says I'm a computer engineer, I almost had a minor in math, I've studied history and politics, and this stuff still flusters and confuses me.

I know it confuses everyone. I know it is designed to confuse everyone. It's like the game of Fizben.

It's the sucker punch that I'm waiting for.

And it was ALMOST a math minor- 2 classes shy. I left a perfectly good hat and some skin behind getting out of my last one, it was a very close thing. Dr Jones' remains had to be left behind. I didn't bother to go further. :P

Three things to do:

1. Make darn sure any securities account you have is not a margin account. If the firm with which you have the account goes bust, the margin account holder is at risk of being a general creditor. Why? Because the margin account allows the securities to be loaned out and traded by others, this is needed by short sellers. But if it goes bust when what you own is loaned, you get screwed. NO MARGIN ACCOUNTS. See: http://www.bogleheads.org/forum/viewtopic.php?p=243626&highlight=

2. FDIC protection runs to $250K. If you have more, then spreading the money out among banks will spread out the risk and potentially get you more protection. Also, a married couple can get protection on three accounts by having one in each person's name and a joint account. All three would get FDIC protections, as I understand things.

3. Have cash. I know of major bank employees who recently having been maxing out their ATM wthdrawals every day. If banks have runs, having cash is going to be good. Banks in NYC have almost no $100 bills. Lots of people ae hoarding cash too.

ok, so you have to start over with a credit card you will use for emergencies. no biggie. the sooner you do, the sooner you will be where you want to be.

maybe try you local bank first. or a major department store - maybe buy some socks or ? - they're typically easy to get and then you will start to get offers from a lot of different cards.

please be aware NOT all credit cards have cash back.

you can search the net for sites that compare credit cards and their unique advantages.

If all you want is a buffer of a couple grand, what's the matter with putting a couple of grand in a savings account?

As I've said before, an emergency is the worst time to be getting back into credit card debt.

A rule of thumb I've heard is to keep a reserve of three to six months of expenses as an emergency fund. Buying another car because your old one is wearing out is not an emergency, that should be a seperate savings goal.

Many banks offer a "high interest" savings account with "money market rates" which seems to amount to about 2-3% these days. Put it there and FORGET about it, you're not trying to "build weath". Don't put it in CD's, keep it liquid.