Why a Credit Card is Riskier than a Payday Loan

Why a credit card is riskier than a payday loan

End-of-the-month anxiety is a serious concern for many people living in the UK. Sometimes, especially just after the festive season, bills mount up and cash-flow gets uncomfortably tight. It’s usually at this stage that people start considering their financial options. Instant payday loans in the UK are a popular option for those who need a short-term helping hand, but there are those who find credit cards to be a viable option. Is a credit card better than a payday loan? The simple answer is that credit cards are somewhat different to payday loans, and if you want to limit your risks, a payday loan is the right answer.

What’s so risky about a credit card?

What makes a credit card a riskier option is the potential to unwittingly get yourself into excess debt. It’s important to note that interest is added to a credit card balance on a monthly basis. This means that your outstanding balance will keep increasing. When paying the minimum amount due, a certain amount of the installment will simply go towards paying off the interest amount added. In essence, you are paying money that will never reflect on the actual outstanding credit balance.

In the UK, payday loans have limits that ensure a lender never repays more than double the loaned amount. Unfortunately, nowadays there are no limits to credit card costs. This means that your credit card balance can keep gathering interest and the cost of any purchases along the way. In some instances, this can keep growing to the point of your credit limit being reached or even exceeded. Miss a few payments and you could find yourself in serious debt.

The temptation of a line of credit

Payday loans are designed to be short-term solutions to money difficulties. They are paid off quickly. A credit card is far riskier as it provides a consumer with a constant line of credit. In some instances, credit card companies automatically raise credit limits, which means that you could find yourself getting into more and more debt, just because you have the card on you and a credit amount available to you. The temptation to use it could get you trapped into a lifetime of debt repayments.

Scary stats on how credit cards affect UK citizens

Credit cards provide access to money that can be used over and over for years. A payday loan term ends after a few weeks or months. When you apply for a payday loan, you are approved for a certain amount that must be paid off in full before the next amount or a new loan can be requested.

The Financial Conduct Authority released shocking stats regarding credit card debt UK-wide. These include the following:

* In 2016, the UK consumer market of 30 million people was paying off £61 billion on credit cards.
* 19% of these cardholders were experiencing money problems as a result of poor credit management.

These statistics alone show just how dangerous a credit card can be.

Last word

If you want to save yourself the potential long term financial implications of credit, opt for payday loans. It’s a quick, easy, and no-strings-attached helping hand through the slightly tougher times of the month or year. Need more advice on payday loans? Contact us today!