With the cost of food, housing, and other basic necessities rising year after year, it can be hard to stay financially afloat -- especially when an urgent car repair, medical bill, or other unexpected expense derails your monthly (or yearly) budget. If you find yourself in a short-term cash crunch, what are your best options? Should you pursue a personal loan or simply put this expense on a credit card to be paid off over time? Read on to learn more about some of the factors you'll want to consider when deciding how you should proceed.
Check your available interest rates
If you have good to excellent credit, a 0 percent introductory rate may be a great option to help you bridge a temporary financial shortfall. As long as you've fully paid off the balance before the 0 percent term expires, you'll be able to get by without paying a single penny of interest. Even for those who are unable to fully pay off a 0 percent credit card during the introductory period, getting the balance down to a fairly low level will limit the total amount of principal and interest you'll be required to repay.
However, if you don't qualify for any of these "teaser" rates, a personal loan is likely a better option. With average credit card interest rates hovering around 17.5 percent and average personal loan rates at closer to 5 percent (for those with excellent credit), choosing a personal loan rather than carrying a balance on a credit card is clearly the financially wisest choice.
Think (honestly) about your ability to quickly repay the loan
While interest rates are important when determining which type of loan product to select, they don't tell the whole story. In some cases, you may wind up paying significantly more in interest with a lower-interest, longer-term loan than with a higher-interest loan you're able to fully repay in just a few billing cycles. Depending upon your current cash flow, going with a higher-interest option to knock out this debt sooner could make sense.
As a result, you'll want to take a hard look at your finances before applying for either a personal loan or a new credit card. If you don't have enough padding in your monthly budget to make more than minimal payments, a personal loan with a lengthy term may be what you need to stay afloat. On the other hand, those who would like some incentive to extinguish this debt quickly (and have the financial means to do so) may see a credit card as a better solution. Visit Union State Bank for more information.