Personal Loans: Your Better Alternative to Credit Card Debt

Personal Loans: Your Better Alternative to Credit Card Debt

by Erin F

In this modern era, almost every information is digital, handy, and can be done on a snap-finger already accessible. Even when paying in boutiques, hardware or grocery stores, bringing cash is a thing of the past, just pull your credit card from your wallet and you’re already paid.

Credit cards have a reputation for convenience to customers when paying for their purchases. However, this comfort also has its own downside. Credit cards can only cover your given credit limit. And credit cards incur higher monthly and compounded interest rates if you do not pay the balance on its due date.

So it becomes a burden when you are in need of a bigger amount that you know you cannot pay in full the next month. As long as the balance is outstanding, your interests are also compounding.

In cases like that, you’re most likely to look for alternative financing scheme that can suit your needs. Personal loans is a good alternative that’s flexible and affordable for you even if you have a bad credit history. If you’re looking to inquire about a personal loan, check this site for your options.

We also went ahead and listed a few reasons why personal loans are a better alternative to credit cards. Let’s look into details.

Budgeting is harder with Credit Card Debt

How is this so? It is because of the loan repayment schemes. Here’s the difference:

Personal loans have a fixed monthly amortization amount until the end of your loan term. This monthly payment schedule applies on your interest and principal until the loan is extinguished at the end of the term.

Credit cards do not work the same way. Credit cards charge you monthly depending on your card usage. And normally, what is due for the month do not necessarily cover your whole loan obligation, but rather only the interest and a small portion of the principal. If you pay only the minimum amount due, you are actually exposing yourself to incur additional interest on your next month’s billing.

Credit Card Rates are higher than Personal Loans

As mentioned earlier, the convenience of your credit cards also bears its own price. And that price is the charged interest rates.

Most often, credit cards bear higher interest rates than personal loans. The interest rate computation for credit cards is commonly compounded on a daily or monthly basis.

A personal loan is a great financing option if you need to borrow a large amount. With personal loans, repayments can be spread over the term of the loan without having to incur higher compounded interest rates. Interest rates for personal loans are negotiable depending on your credit score.

So, if the money you need would take up years for you to fully pay, go for personal loans to avoid interests.

Late Payment can be Disastrous

Do not forget to consider late payment charges on loans. On credit cards, once you missed paying a minimum monthly payment, expect exorbitant late payment charges added to your next month’s statement of account.

Late payment charges are normally 6% of your amount due. This is on top of your compounded interest rates. To sum it up, once you do not pay on time, chances are the interest rates and late payment charges could be higher than the actual principal amount you swiped on your credit card.

Credit Cards are not for People with Poor Self-Control

Credit cards are very tempting to use, and could actually be a liability for people with poor discipline. Since credit cards empower you to spend more than what is your capacity,  credit card holders must have a strict discipline on his finances in order to avoid buying too much with money you can’t repay.

Moreover, these credit card companies tie up with other merchants to lure you in using their card for freebies or points. Credit cards might put you in a long period of indebtedness if you don’t know how to properly manage your card. Since availability comes handy, you can just swipe it to your heart’s content in malls, even if the items you purchased isn’t at all useful.

You’ll Eventually be out of Debt

Personal loans won’t leave you stuck in debt forever. Unlike credit cards in which the only way to stay out of debt is to pay the balance in full the soonest, personal loans give you an idea of the whole picture on how and when you can repay the loan through your loan payment schedules. Although credit cards afford you the option to only pay a minimum amount, this will actually keep you indebted for long. With personal loans, you just have to consistently pay the due amount and get out of the loan at the end of the term.

Both personal loans and credit cards can help you in one way or another. It’s actually in the level of need and repayment program that the two differs. What’s important is that you match the loan you get from your need.

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