The economy changes, but nothing changes in the credit world: credit cards and overdrafts are still bad options if you need money. With the progress of the coronavirus pandemic in the country, we ended up seeing many institutions mobilizing to postpone the payment of the loan installments, but situations in which the limit of overdraft and credit card is being increased.
Do not fool yourself! This can be the rope for you to hang yourself more in your finances. Guarantee explains you below why using these credits is so bad in these moments:
1. Very high interest
Even with the market moves to try to reduce the interest value of these options, the credit card revolving rate continues at a rate of more than 12% per month and the overdraft of around 8% per month. In other words, both are still expensive options compared to personal loans and payroll loans, which start at rates of 2% per month.
2. You pay for the highest limit
The new overdraft rules that came into effect in 2020 determined that the limit that exceeds $ 500 will be subject to a tariff charge. Banks can charge up to 0.25% for this amount over $ 500, even if you are not using overdraft.
3. Unpredictability about debt
Unlike a personal loan whose installment is fixed, on the overdraft and revolving credit card you do not know how much your debt will be. Interest is charged continuously (they are called compound interest), making debt a snowball. With this, you lose the ability to plan to know how much you have to collect to pay the debt.
What to do if there is no money?
Our first recommendation is that you review your spending spreadsheet. In doing so, try to identify what can be cut from your budget. In Good Lenders, expenses are monitored automatically.
Also look at the other end: income. Is it possible to increase it with some extra income? In this post, we’ve put together some ideas for that.
If you have already cut expenses and increased income, but the budget still does not close, we suggest as an emergency measure that you use a low interest personal loan. In it, the installments are fixed and the interest is lower than in the overdraft and credit card.