When you have a relatively large expense that you can't cover with cash on hand, you generally have two choices to consider: revolving debt such as a credit card, or installment debt such as a personal loan. Which option works best for you?
Consider the difference between the two types of debt. Revolving debt has no finite payment you can pay as much or as little as you want, but realize that you are paying interest for the privilege of carrying that debt. Installment debt allows you to set up a regular repayment plan over time, and the terms of repayment (the interest rate and length of repayment period) will dictate how much you repay per installment and over the total course of the loan. You can budget your interest costs with certainty, assuming that you make regular payments.
Typically, credit cards come with higher interest rates than personal loans. Introductory offers on credit cards may make them the better choice for the first twelve to eighteen months, but once the introductory period has passed, rates rise dramatically. Personal loans tend to be preferred for larger expenses that will take you several years to pay off at your current income, and that are not easily combined with rewards programs (such as vacation expenses). The terms of credit cards and loans offered to you depend on your credit score. You can see your credit score and read your credit report for free within minutes with Credit Manager by MoneyTips.
Here are six examples where a personal loan may be the better choice for you.
We don't mean to suggest that a personal loan is always the best choice in the above situations, or that other expenses that people associate with credit cards should not be addressed with a personal loan. Make your decision based on a reasoned analysis of your situation. Compare the interest rates and repayment periods available to you given your credit score and total debt load, and then go with your best offer.
If you are interested in a personal loan, visit our curated list of top lenders.
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