There are many benefits to using a line of credit and a credit card. Both can offer a variety of advantages and disadvantages alike, and can serve a variety of financial purposes. With that being said, perhaps there are times when one can be more effective than the other.
In this instance, there are those times when a credit card may be a better course of action than a line of credit. While a credit card may typically have higher interest than a line of credit and for this reason seem like the less attractive option, there will, however be those times when a credit card will support the needs of the borrower in a more favourable way.
Read on to learn ‘when is it beneficial to use a credit card over a line of credit?’
First and foremost, a credit card may be more easily obtained than a line of credit. With more credit card options these days, even through bad credit lenders, borrowers with less than stellar credit may be able to secure a credit card over a line of credit. This however, is only one way that credit cards may be the better option for certain borrowers.
That said, if a borrower does not necessarily already have bad credit, one thing is true they sure don’t want to develop more debt in the process. Whether this second instance coincides with having bad credit or not, the reality is that credit cards can offer more manageable borrowing amounts than line of credits. Line of credits can typically range from $5000 to $500,000, and this amount of credit may be prove too much for some individuals.
Alternatively, opening a credit card account can be more beneficial as it may be less likely to lead to too much debt. Whether a borrower is starting out with their first source of credit or they are trying to find their way back from bad credit, for this reason, a credit card may be the safer course of action.
Moreover, applying for a credit card with a lower balance can be a great way for a new borrower to establish a credit history without exceeding their financial repayment capabilities.
While it is also true that credit cards can carry steeper interest rates than line of credits, borrowers who take on a manageable amount of credit may be more likely to pay off the total balance each month, thus not having to worry about the higher rates.
Even if they can not pay back the entire credit balance, they are probably able to pay more of it off, as the monthly payments will be less. Borrowers who find themselves in this situation can look to pay more than just the minimal monthly balance and this can also drastically reduce the amount of interest they have to pay over time.
On another note, when making purchases, credit cards can be more beneficial than a line of credit. Since these cards are linked to bank accounts this increases the security of the transactions. As mentioned, credit cards can offer lower limits, and this is also a way of preventing individuals from spending beyond their means.
Of course, credit users still need to watch that their spending does not get out of control. However, as opposed to a higher credit limit, paying back $500 to $1000 dollars is ultimately more manageable than having to pay back $5000 to $500,000. While borrowers may not go into a credit agreement thinking they will overspend, it does happen, and therefore should be a cautionary tale for borrowing too much credit.
When all is said and done, regardless of what a lender is willing to offer, a borrower still needs to know their own limit when it comes to how much credit they can realistically take on. While it can be tempting to take out a large line of credit, the reality is that this amount of credit may be too challenging to pay off for some borrowers.
All in all, while both a credit card and a line of credit certainly have their own attributes, credit cards may prove more beneficial in a variety of situations, especially when borrowers may need to start out with a lower credit limit, in order to be more successful while managing their debts.