Credit Cards or Short Term Loans. Which Do You Preffer?

When in need of funds, what is the first thing that comes to mind? Two of the most common services people use when in need of money are credit cards and short term loans, each of them with their own advantages and disadvantages. Here are some facts that may help you choose the method best suited for your needs when in need of cash.

Credit Cards - Is one card enough?

First I would like to apologize for my prejudice but I fully support companies that run their prospective employees credit histories before interviewing them. Barring few exceptions such as certain communities that do not apply for the credit card in the first place, research supports that most individuals with bad credit are irresponsible with corporate money as well.
Most of us would have got our first credit card at our college campus or from the local bank where we receive our paycheck.

The interesting thing when using credit cards is that they create this greedy behavior that makes you think you need to have many store credit cards rather than just sticking to one credit card that offers the maximum credit line. During my research I observed that if one is patient and does not accept every credit card offer that comes in the mail then invariably the local bank where you deposit your paycheck would eventually offer you a balanced credit line that will never go in default and work as a real companion. Multiple credit card ownership sends a signal to different credit card companies to restrain from giving out their best credit rates and maximum credit line as your loyalty can rightfully switch each month.

For some reason all of us feel that we must carry at least one credit card from each major brand such as American Express, Discover, Visa, Master Card etc. My research shows this is not true and in my travels to dozens of countries I felt that most of the respectable merchants accept all variations and brands of credit cards.

Therefore multiple credit card brands are a merchant centric problem and as a credit card user you essentially should be comfortable with any single major brand. As a thumb rule the overall credit card line of credit normally offered is anything between one year’ salary to a maximum of two years’ salary for individuals with high credit score. Usually it is prudent not to accept a credit card with a lower interest rate but instead take the offer to your local bank and ask them to reduce your rate of interest on existing credit card.

Short Term Loans -

Payday Loans are like tug of war. On one end you find most of the payday lenders who know that the money they lend will not come back easily while on the other end we find the borrower who resorts to short term loans when all other options are closed.
Research shows that as high as 60% payday borrowers have to be dragged to legal courts. This happens because payday loan providers have managed to offer their services to the most risky and most poorly served strata of population. Invariably the law sides with the borrowers and in most cases the lender is barely able to recover only his principal sum. Still this tug of war continues between the lenders and borrowers.

From a payday lender’s viewpoint the money they loan to each borrower is so small that in spite of very high interest rates the actual factual amount collected is miniscule and therefore it becomes a viable business only if the number of borrowers is very large.

From a borrowers viewpoint the money borrowed is so small that she/he is able to pay it off in a single transaction thereby getting a sense of relief that she/he is not been chased by one more loan collection shark.
In spite of this tug of war there are huge defaulters and the cost of collection for such small amounts from borrowers with negative net worth is prohibitively high.
Both credit cards and payday loans have both several disadvantages and several advantages and what it comes down to eventually is the situation of the borrower and prefferences.

Whichever method you decide to choose when in need of cash, you should always remember to never borrow more than you need, pay extra attention to the interest rate and if possible try not to borrow at all. Think budgeting.

My name is Chris Smith, I work in finance and one of my goals is to help people in need of money make educated choices when their hard earned money is concerned.

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