Many families opt in to getting a credit card rather than a loan, but this may actually be putting you in a worse financial situation. For many of us, bill time at the end of the month is a day of worry, and many people in the UK cannot afford their bills, especially when it comes to winter and the festive season. Payday loans are becoming more popular, but many people still opt for a credit card instead. Credit cards are different to loans in many ways, but they can be riskier. Here is why choosing a credit card may be less beneficial than a loan.
The Risks Associated with Credit Cards
With a payday loan, you know where you are and what you need to pay. The risk with a credit card is that the amount you pay will continue to increase each month depending on how much you spend and how your interest might change. Your outstanding balance can continue to increase, particularly if you’re only paying back the minimum amount each month. This means some of this will just go towards the interest that has just been added, making the payments seem like a pointless and never-ending task. A payday loan has a limit, meaning you can never pay more than double the amount that was lent to begin with, but this limit doesn’t apply to credit cards. If you need a loan, it may be best sticking to a reputable loan company such as BingoLoans, who can provide loans for bad credit based on what you want and how long you want to borrow it for.
A credit card is full of temptation and for those who already have one, you know all too well how easy it is to just use your credit card for a small purchase you can’t afford here and there. Payday loans are there for a short-term solution for a quick fix if you need help with home emergencies. If you know that you are easily tempted, it may be best to avoid credit cards altogether as you could end up in a financial mess. Banks also lure you in with promises of 0% on payments, yet this doesn’t last forever and there will be a time where you will have to pay everything back and much more.
Credit Card Statistics in the UK
A credit card can be used for several years, which means you are much more likely to rack up a large debt. Payday loans are there simply to be paid back within a couple of months. The FCA (Financial Conduct Authority) have released some scary statistics regarding credit cards. In the UK in 2016 alone, the UK population owed over £61billion in credit card payments. Of these 30 million credit card holders, 19% were having money troubles due to the fact they had managed their credit poorly.
Never borrow more than you can afford and remember that failure to pay back credit cards or short-term loans may negatively affect your credit score.
Thank you to our Guest Author Corinne Waldish
Corinne Waldish is a mother of four living in Portsmouth England with a background in financial planning and wealth management.