You can rely on credit cards and weekly repayment loans in order to meet small unexpected expenses. Neither of them is more useful than the other because they both work differently.
What are credit cards and how do they work?
Credit cards are a form of spinning credit. They come with a maximum limit on the amount of money you can borrow on your card as and when you need it. However, it is not recommended that you max out your credit card because it significantly increases your credit utilisation ratio, damaging your credit score.
Credit cards are convenient because you just have to swipe them in order to purchase anything. You can use them to pay unexpected bills as well. After the end of the billing cycle, a statement will be released informing you how much money you owe in total. You are supposed to discharge the whole balance within the grace period. You can avoid paying interest if you manage to repay the whole debt within that period of time.
Credit cards come with risks if not managed responsibly.
What are the upsides of credit cards?
The following are the benefits of credit cards:
Convenience
Credit cards are extremely convenient. If you already own a card, you can utilise it to make investments and settle bills. They are accepted everywhere, whether or not you are buying from a store.
Rewards and cashback
Many recognition cards offer tips and cashback. If you use them responsibly, you can earn rewards. You can get cashback on purchases.
Credit building
One of the advantages of operating a credit card is that it can help build your credit history. If you repay the credit card bill on time, your credit score will remain high. However, it is vital that you settle your credit card debt before your statement balance is reported to credit reference agencies. Otherwise, despite the settlement of credit card debt in full within the grace period, you will have a high credit utilisation ratio. This will lower your credit score.
Fast access to cash
You can access cash immediately. You just need to swipe your card, and the payment is done. You do not ought to stress about having cash. You will have enough time to arrange cash to pay off your credit card bill.
What are the drawbacks of credit cards?
Here are the downsides of credit cards:
High interest rates
You can avoid paying interest only if you settle the total credit within the grace period. If the interest-free period expires, you will end up paying high interest. There could be additional charges which significantly increase the cost of the debt.
Debt trap
Since credit cards are convenient, it is possible that you fall into a debt trap. You will most likely be dependent on them without realising that you are accumulating debt.
When the billing cycle ends, you eventually figure out that your budget has fallen short of cash to discharge the bill. Though you can make the minimum payment, this will continue to accrue interest on the unpaid balance, snowballing the credit card debt.
Credit score damage
Missing payments and maxing out your credit card will lower your credit score. You should make sure that you do not use more than 30% of your credit card limit. In order to protect your credit score, you should pay off the balance in full.
What are weekly repayment loans and how do they work?
Weekly repayment loans are similar to instalment loans in the UK from direct lenders only. When personal loans are paid back in weekly instalments, they are called weekly instalment loans. However, these loans are for a relatively small amount of money. The maximum loan amount you can borrow is up to £1,000.
Instead of paying off a loan in a lump sum, you will pay off the debt in weekly instalments. Weekly repayment loans are technically short-term, high-cost debts such as instant loans and quick loans. Interest rates vary by lender. They are decided based on your credit score and repayment capacity. Payments are automatically deducted from your bank account.
What are the advantages and risks of weekly repayment loans?
Advantages
- You can easily manage large instalments.
- They are budget-friendly as instalments can align with your budget.
- Frequent payments reduce outstanding balance quickly.
- Weekly repayments ensure consistency in timely payments.
Risk
- Interest rates for these loans are quite high.
- Missing one payment can lead to penalties.
- Not all lenders provide these options.
- Weekly deductions may strain your monthly budget.
How to use credit cards and weekly repayment loans responsibly?
Smart credit card practices
- Pay off the full statement balance. If you cannot, pay more than the minimum balance.
- Do not withdraw cash on your credit card.
- Track your expenses to ensure that you do not utilise more than 30% of your credit card limit.
Smart weekly repayment loans
- Automate payments to avoid late fees.
- Compare interest rates to choose the most affordable deal.
- Borrow only what you can afford to pay back.
- Track weekly expenses
When should you choose a credit card or a weekly repayment loan?
You should choose a credit card if:
- You want flexibility. Credit cards ensure immediate access to cash as and when you need it. They are a type of revolving credit.
- You are certain that you can discharge the full amount. This is the only way to avoid paying interest.
- You want to build your credit history.
You should choose a weekly repayment loan if:
- You need a structured repayment plan.
- You are confident that weekly repayment plans will not strain your budget.
- You want to ward off the temptation of using a revolving credit card.
The final word
Credit cards and weekly repayment loans can help you fund small emergency expenses. You should carefully understand your needs and check your affordability. Understand the pros and cons of both options and then decide which one suits you best. Both require caution and deliberation.
