Personal loan or credit card debt:What is right for you

Personal Loans vs Credit Card Debt

Regardless of how much you have saved for a rainy day, there are times when life just isn’t predictable. In those trying times, or when you just don’t have enough cash, there’s that one failsafe you can always bank on – credit. When we think of credit, the first thought that may come to your mind is a credit card. While credit cards are more popular, they come with more cons than pros. In certain cases, a small personal loan might be a more practical choice. Not convinced? Here are a few reasons why a loan may be a better choice:

Flexibility in Time: The primary factor with a personal loan is the term to repay the amount. Credit cards provide a month to repay the borrowed credit. On the other hand, personal loans provide the flexibility of repaying the borrowed credit as per your comfort with respect to the number of instalments taken to repay the loan.

Fixed Monthly Instalments: Credit cards carry a recurring debt – if you fail to pay the entire balance at the end of the month, it will be carried forward. This could lead to debt spiral, wherein more credit would be consumed to repay the previous debt, which in turn will reflect badly upon your credit score. In contrast, a personal loan is a much better option, since you know exactly how much you’ll be paying each month. Therefore, it facilitates you with the visibility of knowing exactly how much you are paying in the decided duration of time.

Debt Spirals: With a credit card, when your balance carries forward, the credit card can still be used to make a purchase – translating into more debt, which in extreme cases, can lead to a debt spiral. In such a case, a personal loan is a much better option, because you receive a fixed amount, and you repay it in fixed instalments.

Annual Percentage Rates (APRs): In simple words, APR is the annual rate charged that is charged on the amount of credit you borrow from a source. If you’re conflicted between whether you should opt for a personal loan, or a credit card’s debt, a look at their respective APRs would solve this issue. With a personal loan, the APR is approximately 30%, while the APR for a credit card is around 48%, which speaks volumes about which should be your preferred choice here.

In conclusion, while credit cards might seem like an easy way of acquiring credit for your needs, they come with their own fair share of disadvantages. Owing to this factor, it is not only advisable but also a wise decision to opt for a personal loan.

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