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Sunday, 18 November 2007 |
Life may mimic a roller coaster, with its tremendous ups and downs. It may seem inevitable that one point in our lives, we will all have an experience with debt. Life is expensive, and events occur that cost large amounts of money. These events come in all forms, such as health care, vehicle repairs, job loss, and necessary travel. To finance these costs, it is important to make an informed choice when deciding between credit cards or personal loans.
Credit cards: flexible for the short-term
The benefit to using a credit card to cover unexpected costs is flexibility. The month to month balance will have flexible payment options, but it is an expensive way to carry debt. The minimum payment of a regular credit card will just barely touch the principal, with the majority of payment being used to pay the interest that has been accumulated through the month on the balance. Credit cards balances may creep up each month, and it is easy to feel overwhelmed with this solution for short term expenses. Alternatively, a credit card may be the better option than a loan if the debt will be paid in a timely manner, ideally in less than a month. By paying the debt when the monthly statement is due, you will not carry over a balance nor accrue interest. A loan may take up to five business days to be approved, and if you need the capital immediately, a credit card may be the most viable option.
Personal Loans: long-term savings
There are many different types of loans, but the main benefit of a loan, when compared to that of a credit card, is the fact that the loan comes with dramatically less interest. It is common for the interest to be as much as 75% less than then the amount one would pay on a credit card. In addition, the loan has a monthly fixed payment. Some loans are furnished with the option to repay the loan before the term is over – although ironically, some companies may penalize the customer for paying off the loan in full early. The smarter decision in regards to long-term cost is a loan, which also has a long-term payment timeline. Loans add to your credit rating, if paid in a timely manner each month. On the other hand, a credit card may be the smarter option if the money is required for a short period, and you intend to pay the balance within one month. Debt is a dangerous game to play, and it is easy to get in over your head. Using credit in a responsible manner will help to decrease the risk of debt affecting your life. It is important that you incur debt wisely, as all debt comes at a price. In most cases, that price is a high interest rate.
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