Most Australians either have a credit card, a personal loan or both. If you have several accounts and loans to pay off, it can really be overwhelming. For some Aussies, carrying too much credit card debt and having loans becomes a dilemma, placing them in a stressful situation.
If you are torn between repaying your credit card debt and your personal loan, to improve your credit score, you are in the right place.
Personal Loans vs Credit Cards
Personal loans are lump sums of money that are granted to you by the bank or your lender. This type of loan is unsecured loans and are paid back in regular payments, sometimes fixed or with varying interest rates.
Credit cards is a form of loan extended to you by the bank. You charge your purchases to your card up to the allotted maximum amount. Payments can be in full or in increments to cover for these charges. Not paying for your balance within a certain allotted period will cause your balance to incur charges.
Despite being different in so many ways, personal loans and credit cards is a form of debt.
Clearing Credit Card Debt First, Before Your Personal Loans
Ideally, it would be best to clear your credit card debt and prioritize its repayment. Here are some of the top reasons why credit card debt should be on top of your lists compared to your other financial debts.
- Credit card debt has higher interest rates compared to personal loans. Paying them first allows you to save from possible interest rates that your principal debt may incur.
- Paying for your credit card balances regularly builds your credit score. Your credit score is parallel to your timely payments, plus the amount you owe compared to the credit line you have available.
- Handling your credit card debt in a responsible manner can work a lot in favor of your future financial needs. You build your credit score and create a good credit history that can help you get approved for lines of credit and loans in the future.
Allot Payments to All Your Debts
Repaying for your credit card debt and personal debts are obligations that you need to prioritize to maintain a good credit standing with your lenders. Even if you are aggressively paying for your credit card debt over your personal loans, you can still continue making minimum payments on all the debts that you owe. Not being able to do so will affect your credit score and your overall finances. If you have multiple credit cards, it would be ideal to have them consolidated into one so it would be easier to monitor them and would have to worry repaying a single interest rate, rather than several interest rates from the different credit cards that you own.
Are you looking into applying for a personal loan but is worried about your bad credit history? Intellichoice can help. Contact us today or check out this article Loans for People With Bad Credit: Bad Credit Mortgages and Financing to learn more.