With debt continuously rising in Australia every year, it’s not surprising to find out that more and more people are trying to come up with ways to pay back what they owe. Most of the time, it will boil down to the following: personal loans or credit cards. Both options have advantages as well as disadvantages; however, considering your situation, each of these can save you from a pinch. You just need to figure out which one suits you best.
The Major Differences
Both credit cards and personal loans are provided by many different types of financial institutions; however, while personal loans have a finite amount of time, credit cards will revolve around a certain line of credit. When it comes to personal loans, you receive the desired amount at the beginning with the condition that you pay it throughout the decided term (it can be from one to seven years). Once you stick to these ongoing payments, you will eventually have paid the loan in full.
Credit cards, on the other hand, are not based on such terms. You are offered a credit limit, and you will be asked to make monthly repayments to keep your account in good shape. You can always withdraw more money from that card – as long as you pay back a percentage of what you have spent every month.
How to Choose Between a Credit and a Loan
Many people opt for credit cards because they come with rewards, interest-free days and you can balance the transfer for debt consolidation. Credit cards are a great option if you find yourself in need of a constant cash flow or want to make a small purchase; however, since it requires only a minimum of payment every month, you can find yourself with a debt that is rolling on and on, nowhere close to being paid. However, if what you have in mind are small payments that go under $5,000, a credit card is the suitable choice for you.
Personal loans, on the other hand, have a lower interest rate than credit cards. You have a fixed payment set for every month which was made to ensure that your debt will eventually be paid in full. You will not be tempted to spend more than you can afford, and in the long term, it may prove to be cheaper. However, these loans are not as flexible as credit cards, and the minimum loan terms will generally have you paying the debt for more than a year. Even so, if you are planning to make a larger purchase (such as a car or a house renovation), a personal loan may be the one you’ll want to opt for.
In the end, from a structural point of view, credit cards and personal loans are pretty similar. They are both credit forms, and they both have to be repaid every month. Still, you will need to consider what you need the credit for. A credit card is a great option for small purchases due to its interest-free days, rewards and bank purchases; however, personal loans are much more suitable for debt consolidation and also have a fixed system to ensure that the debt is paid in full.
