Excerpt from U.S. News & World Report looks at credit card financing options.
Featuring Katie Bossler, GreenPath Quality Assurance Specialist & GreenPath Expert
This time of crisis has many looking to make ends meet. To manage finances through the coronavirus, many people have found that the credit cards currently in their wallets may offer a hybrid type of loan that could help.
It’s best to consider all the facts before considering this option. First off, a credit card loan requires neither a credit check nor an application. This makes it attractive since it removes some of the traditional barriers to loans, and allows you to pay in installments.
What Is a Credit Card Loan?
As with any loan, take some time to look deeper. A credit card loan allows you to borrow money against your credit limit. This approach is different than credit card cash advances.
Once approved, you’ll get a cash deposit directly in your bank account, which you’ll repay in installments over a set number of months at a lower interest rate.
When to Use A Credit Card Loan
You may consider a credit card loan if:
- You qualify for the loan or payment plan.
- The amount you can borrow or put on a payment plan depends on how much of your credit line is available.
- There’s an emergency and you lack savings. Accessing cash through a hybrid loan can be a lifeline for someone in a financial crisis.
- You prefer a streamlined loan and payment process. Hybrid loans and payment plans remove some steps associated with traditional borrowing; for example, they don’t require an application or credit check.
- The payment is simple. With credit card loans, you request the funds and receive the money within a few days. The monthly payment is then included in the minimum payment due each month to simplify paying your bills.
- You want a predictable payment and fee structure. Before taking out a credit card loan, you’ll see whether the monthly payment fits your budget. A credit card minimum payment, on the other hand, can vary based on your balance and how much interest has compounded.
“It’s a huge advantage to be able to understand those terms upfront in a way that you wouldn’t with a credit card,” says Katie Bossler, financial expert at GreenPath Financial Wellness, a nonprofit financial counseling agency.
A credit card loan might also be of interest since:
- You won’t pay application fees or prepayment penalties, although account fees, such as late payment fees, may still apply.
- You don’t qualify for cheaper credit. Some banks are tightening eligibility standards on some lending products, including home equity loans and personal loans. If you need to borrow money and can’t qualify elsewhere, these options may help you access credit with affordable loan terms.
Think Through the Options
Thinking through the options is the best way to be a smart credit card user.
If hybrid loans and payment plans aren’t right for you, consider your alternatives.
Setting a savings plan is a good option if the circumstances permit.
Bossler suggests figuring out how much a monthly payment would be on a loan. Putting away cash can help you determine if you can afford a monthly payment in the first place.
“If you don’t have that money in savings after a few months, you’ll know that it won’t really work with your lifestyle,” she says.
Read the full article from U.S. News & World Report.
Have Questions About Managing Your Credit Cards?
GreenPath’s NFCC-certified credit counselors can walk you through tips for using credit. They will also show you how to get a free review of your credit report. They’ll explain how to read the report and how credit scoring works, and answer your questions. Together let’s make a plan for managing your credit to support your goals.
Katie Bossler has been with GreenPath since 2003. She currently serves as a Quality Assurance Specialist and is based out of our Detroit office. Katie passionately believes everyone can achieve financial wellness and is grateful to dedicate her work in helping GreenPath remix the American Dream so it works for everyone.
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