For many of us, it can be all too easy to reach for the credit card for purchases we just don’t have the cash for upfront. And while we may have the best intentions to repay the credit card debt as quickly as possible, often we fall into the trap of only making the minimum payment … or similarly, continue spending until we max out the card.
Credit cards certainly offer convenience, especially for those unplanned impulse purchases, but they can cost dearly in the long run.
Credit card interest rates can reach as high as 20% pa or more. Even low rate cards can charge more than 13% pa on purchases. Then there are the annual fees. While credit cards with no annual fees are available, interest rates on these cards are generally higher.
In addition to the high interest and annual fees charged on credit cards, unless you’re disciplined and pay your outstanding balance each month, credit card debt often means long term debt … and consequently paying much more in interest.
You can find out how much your credit card is actually costing you with MoneySmart’s credit card calculator.
So, what is the alternative to using your credit card for those more expensive purchases?
You could consider a personal loan.
Advantages of a personal loan
One advantage of ditching the credit card in favour of a personal loan is that you can fix your interest rate for the term of your loan. With a credit card, the rate you are charged can change at any time.
You also know exactly how much you’ll repay each month, and for how long. Therefore, unlike a credit card, you’ll know up front the true cost of your purchase. And with a fixed term, you won’t go on paying off your purchase indefinitely as could be the case if you were to only make the minimum credit card repayment each month.
Of course, the benefit of using your credit card is that you can make your purchase immediately. You don’t have to apply or wait for approval. But there is a way to take advantage of both the convenience of your credit card and the potential savings of a personal loan.
With a Westlawn personal loan, you’ll usually receive same day approval if your loan application is complete. But if you just can’t resist the urge to use your credit card, you could apply for a Westlawn personal loan to repay the outstanding credit card balance. Just be careful not to then make further purchases on your card once you’ve repaid the balance in full.
With a Westlawn personal loan you can use direct debit to set and forget your loan repayments, you can choose to pay weekly to further reduce your interest payments and you can even make extra payments. Also, there are no monthly fees, but a fee may be charged if you repay your loan early.
So, the next time you reach into your purse or wallet for your credit card, think of the true costs of the purchase and consider a Westlawn personal loan instead.