Like it or not, life is full of surprises and it’s not always the good kind. Maybe you’re laid off from your job or have an accident and end up in the hospital.
Most all of us, at some point or another, will find ourselves in the midst of a life emergency, and though we all try to put money aside for the unexpected, we may still end up needing extra cash to help us get by. Nobody wants to go into extra debt but sometimes we don’t’ have a choice. So, what makes the most sense financially- a credit card or a personal loan?
Credit Card vs Personal Loan- What’s the Difference?
A credit card and a personal loan are both ways to borrow money when you need some extra cash. A credit card is a type of revolving credit which means you only borrow what you need as you need it and you can borrow from it as many times as you need to, so long as you pay at least your minimum balance every month and have the available credit. A personal loan gives you a lump sum of cash up front which you will pay back in installments over a pre-set period of time (also called a term).
Pros & Cons
Both credit cards and personal loans have their pros and cons that must be weighed out for your particular situation. Credit cards are convenient and often earn with rewards; however, they commonly carry extremely high variable interest rates and you can easily get in over your head with debt if you aren’t careful. Personal loans come with a fixed interest rate that is often much lower than a credit card but they may come with additional fees. They also come with fixed terms so you know exactly what your monthly payment will be and when your debt will be repaid.
Which Should You Choose?
Based on your financial situation and needs, here are some guidelines of when to use a personal loan or a credit card.
Use a Personal Loan When:
- You’re making a large purchase you know you want to pay off over several months.
- The lender is offering no fees or special rates.
- You have multiple high-rate credit card balances that you want to consolidate.
Use a Credit Card When:
- You’re making a smaller purchase you will be able to pay off in full in the next month.
- The credit card comes with a special 0% introductory offer.
Whether you opt for a personal loan or credit card, spending money on loan should only be done as a last resort and not just to purchase the latest electronics or take that dream trip. Stay diligent on repaying your debt quickly as to avoid paying unnecessary interest or hurting your credit score. Eastex Credit Union offers both personal loans and credit cards at affordable rates to help you in your time of financial need. Click here to learn more!