Category: Credit Cards

Sometimes we are forced into making difficult financial decisions. It is always wise to think them through for some time before committing to them. It can be difficult to do this at times, if we need the money quickly, for example, we can tend to panic and rush our decision making. It is wise to try to slow down and ponder things first. For example if you are deciding whether to have both a credit card and an overdraft.

Costs

Firstly it is worth thinking about the cost of having these loans. All loans cost money and you need to think about the most cost effective way of borrowing. A credit card is quite expensive but an overdraft is even more so, particularly an unauthorised one. It is worth looking at different credit cards and overdrafts to compare the prices and see how much each will cost you.

Both of these types of lending do not require large regular repayments. The credit card needs a small minimum repayment each month but a large balance can remain outstanding. The overdraft will be automatically repaid when funds go into the bank account, but will remain until those funds are paid in. the costs of these two loans will therefore depend on how long it takes you to repay them and are very variable. If you repay quickly, they can be pretty cheap but if you take a long time to repay them, then they will get really dear. If you have both of them, then there is a chance that you will use both to their max and accumulate a lot of costs.

Risks

There are risks with these types of borrowing. As there is no repayment schedule, then it can be tempting to not worry too much about repaying them. This means that the debts can remain unpaid for a long time. Each day that you keep the debt will cost you money and that will build up and up, making them very expensive.

There is also the risk of repeat borrowing. With a personal loan, you organise it with the lender, wit and while, get the money and the repay it in full. With these loans they are always available so you can use them to borrow money whenever you wish until you have borrowed up to your credit limit. So you could just pay back a little bit and then borrow again, over and over again. This will end up costing a lot of money in interest and fees and you could end up finding that you owe so much that the interest payments are no longer manageable.
Therefore you need to be sensible and only take out this type of loan, or both, if you are confident that you will be able to repay them. Consider whether you will be self-disciplined enough to make sure that you pay off the loans as soon as possible to keep the costs down. Also think about whether you will be sensible and make sure that you do not spend extra money because you have the loans available to you.

Repayments

It is wise to also think about how you will manage the lack of repayment schedule. With an overdraft the loan will be paid off when you get paid, so this will be easy but you need to make sure that you do not get into the habit of borrowing month after month. You will need to be really frugal and budget well so that once that debt is repaid you do not accumulate it again.

With a credit card you might be best to set up a direct debit to repay the full balance each month. Then you will never get into debt with it and you will not have to pay any interest. It can be tempting just to repay the minimum balance but try to avoid doing this unless you really have to as you will end up paying high costs as a result.

If you are trying to manage both a credit card and an overdraft it could make things harder. You will need to work hard on repaying both and making sure that you do not overspend on your credit card and from your current account. With so much credit available it could mean that you are more likely to be tempted to spend some of it and get into debt. So think carefully about whether you should have both forms of credit. It will very much depend on your personality and how well you manage money as to whether you feel that it is a good idea to have both or not. You should know how well you have coped with debt in the past and what you current financial situation is, which should all help you in deciding whether to do this or not.