Most of us have found ourselves in a situation where a short-term loan would really save the day. Not everyone stuck in a financial bind thinks about using a loan, often, they just put it on their credit card.
There are some important things to think about when it comes to a financial emergency and how to pay for it.
When you need cash or a lump payment for something, which is the best way to go, credit card or short-term loan?
Credit cards are certainly handy. If you are in a bind and you have a credit card, you can pay for what you need. You don’t have to wait, apply, or worry that you will be turned down.
Many people can get a credit card. Often, when you open a bank account, you can get a credit card, as well. You can get a credit card with a smaller limit, even if you have bad credit.
Keep in mind that it is very easy to get carried away using this type of credit if you’re not careful. Just because you have $5,000 available, doesn’t mean it’s a smart idea to use it.
The interest can build quickly when making just the minimum payment every month. So, before spending on a card you should be asking if yourself if you can pay all, or a majority of the amount due, on your next bill.
The interest rate can also be variable, which means it can go up in the middle of your debt, making the amount you eventually pay off even higher. The credit card company can up the interest rate if you are late with payments as well.
A short-term loan can be a good option for people when their credit debt is already high, or they don’t have a credit card.
You only get the one payment for a short-term loan, unlike a credit card, where you are tempted to keep using it. A short-term loan must be paid in full before you can apply for another one.
The interest rate on a short-term loan will be fixed, so it won’t change during the time you are making payments. By paying the loan in full, it helps to avoid racking up additional interest charges as well. It’s important to also remember to avoid overusing short-term loans. They are designed for short-term financial solutions.
It really comes down to how much you need and how long you need to pay it all back. Both credit cards and short-term loans have fees, penalties, and interest which will vary depending upon how you use them.
If you already have substantial revolving credit debt, adding more to it will be more expensive than a single-payment loan.
If you are disciplined with money and can pay all, or most of the credit card bill each month, then a credit card is a convenient credit tool. It will also help you build traditional credit which can help your credit score.
If you’re a little more undisciplined with finances, then a single payment short-term loan might be a better option. It won’t help your credit score, but it won’t hurt it either.