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Is a Credit Card the Best Sort of Loan?

There are many different types of loans. Some are for specific purposes, but there are also a range of loans for general purposes and these include the credit card. Many people do have credit cards and find them a very convenient way to spend money. They are accepted by most retailers, you have access to an agreed sum of money, you can pay it back when you want to and sometimes you get insurance on the items that you have purchased with the card. It may be the only safe way to buy things online and it can be very much quicker to use in shops than fiddling around with cash.

It may seem that a credit card has many advantages over other loans such as payday loans and it does. Not only are the above things true but it also is easy to fall back on. With most loans you have to negotiate it, you get the money and then have to pay it back. With a credit card, you can borrow up to a certain amount of money, pay it back when you want and then borrow more, up to a certain limit whenever you need it. This means that it is almost like having a constant pool of money to draw from. This can be extremely useful but there are disadvantages as well. As the money is always available and very easy to get hold of, it is therefore very easy to spend it without much thought. When you borrow money, you should really consider whether you really need the loan, whether you can afford to pay it back, how much it will cost and whether there are cheaper or better options available. With a credit card, it is too easy to just use it for purchases and worry about these things afterwards and this is why many people get into trouble with a credit card.

Some credit cards have a cash back facility, where you get a certain percentage of cash or perhaps loyalty points for spending money on the card. Again, this is good for some spenders as it means that they can benefit financially form having the card. It is important to realise though that these benefits are tiny compared to the cost of the interest on the card. Therefore unless you use the option to repay the card in full at the end of the month and therefore have no charges, it could work out expensive for you. It can be tempting to think that you are benefitting when in fact cash back cards or those giving rewards or points tend to have higher interest rates than those not offering these benefits.

Repaying a credit card can be tricky too. If you have a loan with regular repayments then you know that it will be repaid and when. However, with a credit card you can just pay off a minimum amount each month and there is never any pressure to pay back any more than just that. This means that you could end up being in debt for a very long time and the cost of the debt will keep growing and growing. As you are paying off the interest each month it is easy to forget that you are actually paying for this borrowing and it is hard to add up the cost as you keep paying it off. However, this sort of loan can be very expensive. Not only are the interest rates high compared to other types of loans, you can also repay them over an extremely long term which will increase the costs.

So although the credit card can be a lot more flexible than other types of loan it is not necessarily better. It needs no regular repayments just a minimum balance and can be used to purchase many different things. However, the cost of it can be a lot dearer than other types of loans. This means that you will pay a lot more for the items that you buy with it than you would if you did not borrow the money that you were using to pay for them. It is also very easy to use it to borrow money without much thought, so you could end up spending a lot more money than you should while using it.

How Much Money Should I Borrow for a Holiday?

Many people enjoy taking holidays as they find that they are a relaxing break away from their normal lives. They can help you to forget about problems, have family time, experience new cultures and activities and have fun. However, they come at a cost and therefore many people borrow money to be able to pay for them.

Some will just choose the holiday they want, find out the cost and then borrow that amount of money. However, when you are borrowing money it is important to decide how much you can afford to borrow before you spend anything. It is wise to start by seeing whether you can afford to have a holiday without borrowing any money. If you have savings then it can be best to use these as it will be far cheaper than if you borrow money. People often forget top calculate the cost of their borrowing and if they use a credit card, for example it is hard to calculate anyway as you have no idea how long it will take you to pay it back. Some people take years and therefore pay a lot of interest over that time period.

Therefore before you spend any money on a holiday you need to think about where you will be getting the money from and how you will be able to afford to pay it back. Paying it back is a really important thing to think about. You need to consider how you manage to pay out this money and whether it will cause you stress in doing so. Many people take a holiday to reduce their stress, but if paying for it is stressful, then it could outweigh any benefit of the holiday as you repay it. You may find that by the time you have finished paying for the holiday you will be in dire need of another one which will defeat the object of having one in the first place. If you miss repayments or struggle to make ends meet due to having to make the payments then it could make life very stressful. You could end up having to go without things that you need and have a very uncomfortable time.

It is also worth thinking very hard about the type of loan that you want to get. Different ways of borrowing differ a lot in the way that they work and the cost and so you need to consider what will be the best for you. A personal loan needs regular repayments and this will ensure that the loan gets paid back. A credit card will only require small minimum repayments and you do not have to pay back a certain amount at a certain time. This means that you will be less likely to repay it as quickly. If you take longer to repay a loan it will be more expensive, but you may be able to manage it better than having to pay a regular amount each month. However, it could be more stressful if it takes you a long time to repay and of course, as mentioned earlier, will be more expensive. Different loans will have different interest rates, but it is how long the loan takes to repay that will have a bigger influence on the overall cost. So you need to calculate the total cost until it is repaid which includes all of the interest payments and any charges or fees to be able to compare costs.

So before you consider how much money to borrow for a holiday, you need to think about whether borrowing is the right thing to do. Consider whether you can find a way to borrow at a reasonable cost. Consider the repayments and whether you will be able to cope with them over the term that you will have to pay them for. Also consider what stress borrowing may bring to you and whether it is even worth considering the option. You could choose to save up some money each month instead. This will delay when you can take the holiday but it will mean that once you return form the holiday, you will not have loads of loan repayments waiting for you or a lot of debt to face.

Where to Start when Paying back debt?

If you want to pay back your debts, whether you have just the one loan or many, it can be rather daunting knowing where to start. It is a good idea to get yourself organised with some sort of plan so that you know what you are going to do. Firstly you need to start by finding out how much you owe. If you have multiple loans, then you will need to see which you pay off first. Look at how much each one is and what the costs are. It makes financial sense to pay off the most expensive first, that is the one that you are paying most interest and fees on, however, it can be more satisfying to pay off the smaller ones first so that you can see them disappearing. Decide which strategy you think will work the best for you.

Once you know where you are starting then you need to start to pay the loan off. The best start is to use any savings that you might have. This may seem unwise as you may be saving up for something or want the money to fall back on should you get short. However, savings earn a lot less interest than loans and so it is sensible to use them to pay off the money that you owe. However, on doing this, you may still have money left to repay.

It is worth looking at all of the money that you pay out each month and see whether you can reduce that. You may be able to switch utility suppliers, insurance companies or banks without noticing a big lifestyle change and save some money which you can put towards paying off your debts. You may also want to cut down your spending in other areas that may have more of an impact. It is worth questioning every purchase you make to see whether it is necessary and whether you can get the item(s) for less and save money. This is a habit that it can be easy to get into and you will soon find it much easier to cut down on what you are paying out.

It is also wise to see whether there are any ways that you can increase you income. Even small increases can help you to get that debt paid off more quickly. This could be done by asking for a pay rise, working some extra hours in your job or even changing to a better paid job. You could also consider taking on a second job or making some money in your spare time. It can be hard to do these things, you may not have the time or you may feel unmotivated.

It is therefore worth making sure that you remind yourself as to why you are working so hard. Why you are cutting down your spending and earning more. Imagine how good it will feel when you have cleared your debts and no longer have to worry about how you are going to pay them back. Focus on your goal when you feel that you are getting annoyed with scrimping and working hard and remember how exciting it will be when you manage to reach your goal. It can be worth writing down your goal, perhaps even with a date when you want to achieve it so that you can focus on it. Put it somewhere that you will see it each day so that you have a constant reminder of what you are looking to achieve that day. It can make a big difference and help you to get it paid off even sooner.