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A client of mine, who happens to be a business owner, reported to me the other day that his computer died just days before a major project was finished and he had to run out and buy a new one. Since he didn’t have a couple of thousand dollars sitting in his bank account to replace the computer and his software, he had to use his credit card. “I was lucky to have the credit available” he reported.

My client says he was lucky, although I would say he was well-prepared. This is exactly why we work on our credit proactively — so that we have the credit available to handle emergencies. In my lifetime, I’ve seen firsthand (and through many, many clients) how a person’s credit can be crucial in an emergency. Here are four common emergencies that you should be prepared for:

  1. A medical emergency requiring hospital care. If you don’t have medical insurance, you’ll lean on your credit to help you cover it. Even if you do have insurance, there might be non-insured items or fees and deductibles that you’ll be responsible for and may have to pay with a credit card if the money isn’t in your account.
  2. A collision, especially a collision when you are traveling. A collision near your home may be no more than an inconvenience with a minor deductible. But a collision away from home may require credit for a tow truck, unexpected hotel room and a rental car. Your insurance may or may not cover this, and even if it does cover it, you may be reimbursed after you’ve already paid for it.
  3. The passing of a loved one. Although this is something no one ever wants to think about, the sudden passing of a loved one will result in considerable costs. You may have insurance to help ease this potential financial burden, but the policy may not pay out immediately and you could be forced to cover the costs of funeral, transportation and burial in a short period of time.
  4. Weather-related emergencies. Another client of mine was impacted by the recent tragic flooding this year. Although he did not lose his house, there was considerable damage. He’s not sure if his policy will cover anything. Regardless of whether it does, he’s still covering his family’s living expenses and replacing clothes so the kids have something to wear to school.

I’m not just randomly listing horror stories. These things happen to thousands of people all over the country every single year. And do you notice something else? Even though there might be insurance or other financial protections to help ease the burden of these events, there is often a high upfront cost associated with your first response to the emergency. Unless you have thousands of dollars of cash sitting in your bank account, your credit will be crucial.

Don’t fool yourself into thinking these things won’t happen to you. They do happen, and I suspect that most of us will probably encounter at least one of these emergencies. That’s why it’s so important to take control now and work on your credit as the best first line of defense.

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