Credit Card or Loan
http://creditfederal.com/article/articles/448/1/Credit-Card-or-Loan
By CreditFederal.com - A good or bad credit personal loan, auto and mortgage financing, and credit card resource.
Published on 03/29/2008
If you don't have cash money on hand and you have bad credit, which is best: a store charge card, credit card, a secured or an unsecured loan to make a purchase?
Choosing Credit Card or Loan Options for Purchases
Often it's hard to decide which is best, a credit card, a secured or an unsecured loan to make purchases when cash money is not available. That decision can be harder; and limited, when you also have a bad credit history and no family or friends to loan money to you.
Here are situations and a suggested option for each:
Situation:
"I don't have a credit card and no collateral for a loan. I want to purchase an $800 television. What should I do?"
Option:
See if the store offers a charge card with no deposit, no fee, and no minimum monthly (or annual) purchase requirements. If so, that may be your best option as well as the fastest way to complete the purchase. Again, make sure the store card does not require a certain amount of purchases in order for no fees; other than interest, to be charged. Also be aware that the store's interest rate may be very high, so pay the card charges off right away.
Situation:
"I need $500 to get my car repaired. My credit is so bad every credit card application I submit gets rejected. If I don't get my car fixed I can't get to work to pay my bills. What can I do?"
Option:
Assuming your car either doesn't have enough equity or your credit is so bad you cannot get it refinanced to use its equity, ask if the repair shop offers in-house financing and; if so, review the Terms and Conditions carefully. If not; or if the Terms are not favorable, another option is a payday unsecured loan. The good thing is that you can get approved even if you have bad credit, as long as you are employed. Another good thing is that you can repay the loan upon your next payday to avoid escalating, rollover fees. If; however, your auto does have equity yet your credit is still too bad to get a refinance loan, perhaps after borrowing the payday loan and timely repaying it, the timely repayment may help improve your credit enough to secure a refinance loan in the near future.
Situation:
"I have a charge card but the item I want to buy is available at a different store, and the store that is selling the item doesn't offer a charge card. I am self-employed, I have no equity or collateral for a loan, no cosigner, and I'm so deep in debt I cannot get approved for a credit card or a loan. The item costs $300. What is my option?"
Option:
Since your credit is so bad that you cannot get a credit card or a loan, and since your self-employment will likely deny you a payday loan, you need to take action now to start turning your situation around before you have an emergency or financial crisis. First, stop using the one charge card you do have and work towards paying it off. A good way to pay it off while rebuilding credit is to get a secured card that reports to at least one major credit report bureau (Transunion, Equifax or Experian), load funds onto the card and use it to payoff the charge card. Meanwhile, put that $300 high purchase item on layaway and be patient.
Situation:
"I have three credit cards that are all maxed out. My auto loan is $600 a month by itself, and I owe more than the car is worth. I don't have any money in savings and I don't want a payday loan because it won't loan me enough to help anyway. My income is dependent upon my sales. Some weeks I earn more than others and during the lesser earning weeks I need my credit cards to pay my bills until I get bigger commission paychecks. I need to consolidate all my credit cards and my auto loan into a smaller monthly payment so I can balance my bills. How do I get a government debt consolidation loan?"
Option:
Forget the government debt consolidation loan, because the federal government does not loan such money to individuals. Otherwise, banks would be out of business. Considering how you've accrued a great deal of debt by using credit (credit cards and an auto loan), it appears you are not effectively controlling spending habits. Hence, more credit such as another loan, would not do you any good. Even if you were able to get a debt consolidation loan, it's likely you'd run up your credit card charges again anyway. So, what you need to do is to stop using credit, which got you into trouble in the first place. Since your funds are so tight now, instead of hiring a debt management company consider non-profit credit counseling. They can help you get your bill payments restructured to lower the monthly payback amounts; although it will take you longer to payoff your debt. Meanwhile, use every available extra money to not only payoff your debt but to also build a savings account to cover future emergencies and paycheck shortages. Once you get your savings built up, to prevent you from falling victim again to splurging, use a secured prepaid card instead of an unsecured credit card.
Situation:
"I have an auto that has about $2,000 in equity that I could refinance, but my bills are a lot more than that. I owe $8,000 on one credit card that I've been making minimum payments on for over two years. I owe over $5,000 on two other credit cards which have a maximum limit of $5,000 and I'm being charged over limit fees in addition to the high interest. Currently I'm 30 days past due on the first card and over 60 days past due on the other two. I'm about to be late; for the first time, on my auto loan. I rent and do not have a home for a mortgage equity loan. Because of the escalating debt, interest rates, late fees, over limit fees, etc, I now owe more per month than I earn. What can I do to pay my bills and to save money?"
Option:
You've definitely placed yourself into financial hardship, and you may want to consider some very drastic measures. While you still can, refinance your auto loan. Offer at least one your credit card issuers a debt settlement, and use the cash from your auto refinance loan to fund the payoff. If you don't want to settle the other cards; or cannot, at least keep enough of the auto refinance cash to catch up on their monthly payments, plus your auto loan payment. Although you may now have a higher monthly auto loan payment (depending upon the terms and interest rate), you'll have at least one credit card payment out of the way. As for the other two cards, you may be able to negotiate a new repayment plan that will lower your monthly payback amount and spread the repayment over a longer term. But be aware: doing even just one credit card debt settlement can seriously impact your credit score for up to seven years (until the chargeoff(s) fall off your credit report), but in your situation it appears your credit is already destroyed or soon would be anyway.
Here are situations and a suggested option for each:
Situation:
"I don't have a credit card and no collateral for a loan. I want to purchase an $800 television. What should I do?"
Option:
See if the store offers a charge card with no deposit, no fee, and no minimum monthly (or annual) purchase requirements. If so, that may be your best option as well as the fastest way to complete the purchase. Again, make sure the store card does not require a certain amount of purchases in order for no fees; other than interest, to be charged. Also be aware that the store's interest rate may be very high, so pay the card charges off right away.
Situation:
"I need $500 to get my car repaired. My credit is so bad every credit card application I submit gets rejected. If I don't get my car fixed I can't get to work to pay my bills. What can I do?"
Option:
Assuming your car either doesn't have enough equity or your credit is so bad you cannot get it refinanced to use its equity, ask if the repair shop offers in-house financing and; if so, review the Terms and Conditions carefully. If not; or if the Terms are not favorable, another option is a payday unsecured loan. The good thing is that you can get approved even if you have bad credit, as long as you are employed. Another good thing is that you can repay the loan upon your next payday to avoid escalating, rollover fees. If; however, your auto does have equity yet your credit is still too bad to get a refinance loan, perhaps after borrowing the payday loan and timely repaying it, the timely repayment may help improve your credit enough to secure a refinance loan in the near future.
Situation:
"I have a charge card but the item I want to buy is available at a different store, and the store that is selling the item doesn't offer a charge card. I am self-employed, I have no equity or collateral for a loan, no cosigner, and I'm so deep in debt I cannot get approved for a credit card or a loan. The item costs $300. What is my option?"
Option:
Since your credit is so bad that you cannot get a credit card or a loan, and since your self-employment will likely deny you a payday loan, you need to take action now to start turning your situation around before you have an emergency or financial crisis. First, stop using the one charge card you do have and work towards paying it off. A good way to pay it off while rebuilding credit is to get a secured card that reports to at least one major credit report bureau (Transunion, Equifax or Experian), load funds onto the card and use it to payoff the charge card. Meanwhile, put that $300 high purchase item on layaway and be patient.
Situation:
"I have three credit cards that are all maxed out. My auto loan is $600 a month by itself, and I owe more than the car is worth. I don't have any money in savings and I don't want a payday loan because it won't loan me enough to help anyway. My income is dependent upon my sales. Some weeks I earn more than others and during the lesser earning weeks I need my credit cards to pay my bills until I get bigger commission paychecks. I need to consolidate all my credit cards and my auto loan into a smaller monthly payment so I can balance my bills. How do I get a government debt consolidation loan?"
Option:
Forget the government debt consolidation loan, because the federal government does not loan such money to individuals. Otherwise, banks would be out of business. Considering how you've accrued a great deal of debt by using credit (credit cards and an auto loan), it appears you are not effectively controlling spending habits. Hence, more credit such as another loan, would not do you any good. Even if you were able to get a debt consolidation loan, it's likely you'd run up your credit card charges again anyway. So, what you need to do is to stop using credit, which got you into trouble in the first place. Since your funds are so tight now, instead of hiring a debt management company consider non-profit credit counseling. They can help you get your bill payments restructured to lower the monthly payback amounts; although it will take you longer to payoff your debt. Meanwhile, use every available extra money to not only payoff your debt but to also build a savings account to cover future emergencies and paycheck shortages. Once you get your savings built up, to prevent you from falling victim again to splurging, use a secured prepaid card instead of an unsecured credit card.
Situation:
"I have an auto that has about $2,000 in equity that I could refinance, but my bills are a lot more than that. I owe $8,000 on one credit card that I've been making minimum payments on for over two years. I owe over $5,000 on two other credit cards which have a maximum limit of $5,000 and I'm being charged over limit fees in addition to the high interest. Currently I'm 30 days past due on the first card and over 60 days past due on the other two. I'm about to be late; for the first time, on my auto loan. I rent and do not have a home for a mortgage equity loan. Because of the escalating debt, interest rates, late fees, over limit fees, etc, I now owe more per month than I earn. What can I do to pay my bills and to save money?"
Option:
You've definitely placed yourself into financial hardship, and you may want to consider some very drastic measures. While you still can, refinance your auto loan. Offer at least one your credit card issuers a debt settlement, and use the cash from your auto refinance loan to fund the payoff. If you don't want to settle the other cards; or cannot, at least keep enough of the auto refinance cash to catch up on their monthly payments, plus your auto loan payment. Although you may now have a higher monthly auto loan payment (depending upon the terms and interest rate), you'll have at least one credit card payment out of the way. As for the other two cards, you may be able to negotiate a new repayment plan that will lower your monthly payback amount and spread the repayment over a longer term. But be aware: doing even just one credit card debt settlement can seriously impact your credit score for up to seven years (until the chargeoff(s) fall off your credit report), but in your situation it appears your credit is already destroyed or soon would be anyway.