Credit Cards vs. Payday Loans

Credit Cards vs. Payday LoansA lot of people wonder what the lesser of the two evils is with the credit cards vs. payday loans match up.

Credit Cards vs. Payday Loans: Who’s the Winner?

It’s important to note that you’re going to come out the loser no matter if you get a cash advance from your credit card, or a payday loan. You’re still going to pay quite a bit for the money. A credit card cash advance will typically have lower rates, all else being equal.

Credit Card Advantages
A credit card cash advance is usually going to be less expensive than taking out a payday loan, and it’s going to be quick and easy, without the need to visit a payday lender. You can typically just go to the ATM and use your credit card to take out cash. The same trap exists, call it the credit card cash advance trap instead of the payday loan trap. They make it very easy and instant to get the money, but you might have trouble paying it back all at once, and they’ll collect plenty of interest over the months and potentially years you end up keeping a balance.

The credit card company determined your credit worthiness and they also figured out what your credit limit would be. They put that limit at a level that would make it hard for you to pay off the full amount if you managed to rack up a balance. They make their money when you keep a balance, and getting upfront cash is a good way to get yourself into more debt than you can pay off quickly.

Payday Loan Advantages
The biggest advantage to using a payday loan is that it’s separate from everything else, it won’t increase your credit card balance, it’s rather private in that it’s a personal loan, and while the rates and limits vary by state, you will in many cases be able to take out more from payday loans than with your credit card, unless you have a pretty high limit.

There are a few failsafes with payday loans that they don’t have with credit cards. A credit card will let you take out as much as you want, as long as it’s within your credit limit. This means it’s very easy to take out more than you need, and more than you can pay off quickly. But states put limits to how much you can take out per loan, and how many loans you can get at one time. This helps protect you from yourself, which is important because in times of financial distress you may make decisions that you later regret.

Disadvantages to Both
The disadvantage of using either one is that you’re typically borrowing money that you will have trouble paying back. This can get you into hot water quickly because you’re going to get late fees and penalty charges on your credit card. It can make it so your credit score lowers, and you may have trouble getting other credit cards, or paying more for car loans and mortgages. All because you ran into a bit of trouble once.

And the Winner Is…
We’d suggest going with a payday loan over a credit card because you don’t want to put yourself in a position of screwing up your credit by getting in over your head with a credit card. That information will instantly show up on your credit report and start effecting your life right away. It takes much longer for a payday lender to report you to the credit bureaus, especially if you work with them to pay the loan off if you run into trouble.

The rates might be better with a credit card cash advance, and it might be an easier process, but it still comes with its share of disadvantages.

Of course every situation is different, so you have to run the numbers and try to avoid the pitfalls that often arise when you are experiencing financial difficulties. Develop a strategy for how you’re going to handle the situation, not just today, but down the road, and how you’re going to pay things off, and then stick to your plan.

Add Your Own Thoughts to Our Credit Cards vs. Payday Loans Analysis Below

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