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Credit Cards v Bank Overdrafts
By Devin Gilliland | On
January 6, 2007
| In
Credit
|
When it comes to borrowing money both bank
overdrafts and
credit card are seen as effective solutions in
the short term. Both have inherent advantages such
as flexibility and short-term cost effectiveness,
but what are the disadvantages and how should you
decide which is the best solution for your
circumstances?
Credit Card Advantages
1. Should you borrow money and pay the amount off by
the end of the month, most credit card providers
will not charge a cent.
2. Should you complete a purchase with a credit
card, and later find a problem with the item, then
the credit card company will withhold payment from
the retailer/provider until everything is resolved.
Credit Card Disadvantages
1. Long term interest rates are higher with a credit
card than they are for a bank overdraft.
2. Credit card fraud is on the rise, and although
the credit card companies are willing to burden most
of the cost, people could still have to pay around
$50 should this happen to them.
3. Should you intend to withdraw cash then your
credit card company may charge you a per
transaction or percentage rate.
Bank Overdraft Advantages
1. Should you have a bank overdraft then you can
easily avoid fines in your bank account, because
this will automatically be covered by your
overdraft.
2. Bank overdrafts are often the most cost-effective
way to borrow money over a period of several months.
Your bank may be able to offer better interest rates
than your credit card provider because they can earn
money from customers in multiple ways, including
mortgages, payment services and savings accounts.
Bank Overdraft Disadvantages
1. Bank overdrafts can be called in at any time by
your bank. What does this mean? Although it is
unlikely, your bank may ask that you repay your
balance within a small amount of time or face legal
action and closure of your bank account. Depending
on state civil law they may also be allowed to use
retention, meaning that if you do not pay your bank
overdraft balance, they could remove this from your
savings account for example.
2. Bank overdrafts will charge you based on an
average of your ongoing balance rather than the
“amount at the end of the month”. This means that
should you borrow for a short period of time, and
pay the balance in full, you will still be charged
for borrowing.
3. Unlike a credit card provider, your bank will not
provide any security in terms of holding back
payment from unscrupulous suppliers.
Should you intend to borrow money through credit
card borrowing or indeed through a bank overdraft,
then it is fundamental that you recognise the
inherent problems that can occur if you have no
obvious way of financing it. It is recommended, that
unless your income will increase, or your
expenditure will decrease in the coming months that
you avoid borrowing money.
This article is written by Devin Gilliland publisher
for
credit-wisdom.com and
jetclient.com
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 Loans/Credit
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