Many of us remember (or would like to forget) the financial catastrophe that had millions of Americans knee deep in the debt ditch. When big banks pulled a proverbial Pontius Pilate and washed their hands of personal unsecured loans, consumers had to resort to racking up exorbitant amounts of credit card use and abuse. We’ve all heard the horror stories of consumers who used plastic as their life line, which eventually left folks on a vicious merry-go-round of paying minimums on increasing balances and so on. More recently, credit card users have seen a slight reduction in their interest rates, forcing consumers into a game of mental judo on whether to choose installment loans or credit cards. Fear not. We’re here to help you iron things out.
Perhaps one of the best (and worst) qualities of owning a credit card is that it is a tangible representation of currency. Think of credit cards like asking your buddy for a loan every time you make a transaction– credit card companies profit exponentially off of this simple fact.
Credit card companies offer hundreds of offers and options depending on your credit rating. Keep an eye out for companies that charge extra for rewards programs. “…before you agree to accept a card, understand all the terms and conditions because your situation might change … Stay away from ones with exorbitant fees and high late fees, even if the other features seem relatively attractive,” says Eric Tyson, author of Personal Finance for Dummies.
When it comes to considering if getting a credit card is the right move for you, go back to basics. Consider this simple formula:
High balance + minimum payments = years of payoff –> low credit score.
Pay at Leisure
Prioritizing is key to managing a credit card effectively. Unlike installment loans, credit cards give you the option of paying at will. With that comes a tremendous amount of punctuality and self-control.
Lower Interest Rates
Installment loans offer substantially lower interest rates than comparable forms of financing. Many payday loans offer astronomical interest rates of almost any type of loan because of the short term and the high risk. Excluding collateralized loans like an auto title loan, car note or mortgage, an installment loan is going to have the lowest interest rates.
Avoid the Ditch
Installment loans provide a fixed amount of money that is directly deposited into a pre-existing checking account, leaving no room for penalty charges. This inadvertenly makes for better budgeting, as you must pay off your balance before another is given.
Installment loans are one of the most widely available types of loans on the market. Applicants with less than perfect credit still have the option of applying for installment loans. Often times, folks will still get approved even if foreclosures and defaults are unveiled in your credit report, if a credit check is even required.
There’s something inherently gut-wrenching about opening your credit card bill each month. Installment loans make the process a little less like opening a bad report card by deducting your remaining balance directly from your personal accounts.
A chief advantage of an installment loan is the repayment plans. Borrowers are able to repay the money over several months. This makes the loans much more affordable and easy to repay than alternatives. Paying back a set amount each month which allows for the expense to fit into a monthly budget while avoiding defaulting.