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You Know How Troubling It Is When You Are Drowned With Lots of Debt

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Advantages and Disadvantages of Having a Credit Card

Having a credit card is not a necessity. Having a credit card only helps you do your transactions more efficiently and conveniently. A credit card is something you can do without.

Here are a few things that can help you see the advantages and disadvantages of having a credit card to re-evaluate if you really need that second one being offered to you.

Advantages:

  1. Efficiency and Convenience

As mentioned earlier, credit cards help us do our transactions with ease. It helps execute transactions with efficiency and convenience. Having a credit card allows you to save time visiting a payment facility when you can do your payment transactions online. It also helps you purchase things you can have delivered right in front of your doorstep rather than going to the store. Lastly, it allows you to make purchases when cash is not readily available.

  1. Payment consolidation

For record keeping purposes, using your credit card for all your expenses and purchases allows you to keep track of all your outflows in one statement. Credit card statements keep track of all the expenses that can help you in keeping account of all the transactions you’ve entered into within a specific period.

  1. Build Positive Credit Score

Of course, this is the easiest way to keep building a positive credit score. If you consolidate all your monthly payments and charge it to your credit card under auto pay, and you are able to pay the obligations you have with your credit card, this helps you build a positive credit score

Disadvantages:

  1. Overspending

Having the ability to spend beyond your actual capacity can often lead to debt. You need to ensure that all the charges you make with your credit card is covered by your cash reserves.

  1. High Interest Rates

Allowing your credit to revolve are charged with high rates of interests. It is quite important be aware of the charges at hand to help you avoid incurring them. Any unpaid amount allows the bank or financial institution to charge you with finance charges.

Identifying the advantages and disadvantages of a credit card allows you to have an informed decision when applying for one.

Advantages and Disadvantages of Getting a Mortgage

Mortgage like any other debt poses advantages and disadvantages when deciding to own a property. It is very important that the pros and cons of getting a mortgage is weighed for better decision making. Here are a few of those advantages and disadvantages you can look into to identify if getting a mortgage for your real property purchase is appropriate and a good decision.

Advantages:

  1. Affordability – The purchase of real properties is made affordable through mortgages. Instead of paying a lump sum amount for the price of the property, as a borrower and a buyer, you have the ability to pay for the price at a staggered basis within your budget.
  2. Cost Effective Loan – Unlike personal loans, mortgage loans are much more affordable with low interest rates due to its nature of being a secured loan. Lenders have a lien over the property being purchased and allows them to bring down the interest rates because the risk of recovering the loan amount is very low.
  3. Credit Rating – One of the most important effects of getting a mortgage and having the discipline to pay for it is increasing your credit score. As long as you commit to the amortizations and having the discipline to pay off the debt, then you have nothing to worry about. A good credit rating from a mortgage can open you opportunities for other types of loans.

Disadvantages:

  1. Fees and Penalties – High fees and penalties are present on mortgage loans. These fees and penalties can actually be avoided by constantly monitoring your compliance with the terms and conditions of the contract.
  2. Larger Payment – Getting a mortgage to pay for your property doesn’t actually lessen the price to make the purchase more affordable. The total amount actually paid for the loan is much higher than the price if paid in lump sum. The additional amount that is paid is actually the interest covering the money that is being borrowed.

It is important to identify advantages and disadvantages specific to your purchase to identify if a mortgage would be beneficial.

Advantages and Disadvantages of Business Loans

Business loans serve different purpose for entrepreneurs. To some, it may be the best option of raising funds for capital and operational expenditures. But a good businessman will always know when it is a good time to get a loan or funds need to be raised through different means.

Here are some points you can look at before filling up that application.

Advantages:

  1. Accessibility

Businesses are usually connected with a bank who helps them with their finances. Convenience and accessibility of getting a business loan is better when the loan is done through bank partners.

  1. Low Interest Rates

Business loans are often offered with low interest rates. Loan packages that are offered by banks can be adjusted depending on the banks relationship with the client and the stability of the business.

  1. Proprietary Ownership

Getting a business loan is one of the ways of raising funds for capital or operational expenditures. One of the advantages is that the business is not subjected to profit or ownership sharing. When funds are accumulated from borrowing from venture capitalists, they become part owners of the business and share the profits being earned.

Disadvantages:

  1. Application Processing

Unless the relationship the business owner’s relationship with the bank is extraordinary, business loan application often takes a while to process. With all the paperwork and documentation that needs to be submitted, the processing time usually takes longer compared to other types of loan.

  1. Collateral Requirement

One of the requirements of a business loan is the requirement of a capital. Being a secured loan, the bank requires a collateral that is equivalent to the value of the loan. These collaterals can be properties or equipment owned by the business or owner. Once the loan has been approved, the business or the owner risks losing the property or equipment that has been placed on collateral.

  1. Restricted Cash

One of the important areas you need to address is making sure that the loan is paid. A source of income must be identified for loan payment or cash needs to be restricted to ensure that the business loan is covered. The downside is that this restricted cash could be used in other business matters that can help generate more income.

Advantages and Disadvantages of a Payday Loan

When making a payday loan, it is quite essential to weigh in the advantages and disadvantages of having a payday loan. This allows you to strategize on addressing your loans properly.

Here are some of its advantages:

  1. Have cash advances for immediate needs

Cash advances are good as long as you can pay them back on time and does not allow you to fall short of your income for the following month. Cash advances can be used for a number of reasons especially for small expenses that need to be addressed immediately.

  1. Still get a cash loan even with a negative credit score

Having a negative credit score restricts the borrower from being granted a fast cash loan. The payday loan allows an individual to be able to make a loan without the credit

  1. No collateral needed

A payday loan is one of the best loans to apply for. You don’t need to give a collateral to support your loan. A check that covers the principal and interest and finance charges is sufficient.

Some of the disadvantages are:

  1. Requires a steady income and checking account

Before you can make a payday loan, you will be required by the moneylender to have a steady source of income and a checking account. The steady source of income to ensure the probability of payment and a checking account where the borrower can write a check which serves as a guarantee of payment.

  1. Not the solution to your financial concerns

The primary reason why people go for a payday loan is to use the money for expenses that current income could not cover. Getting a payday loan for this reason only creates bigger expenses for the coming month.

  1. Loan charges high interest rates and other fees

The nature of the payday loan is short term and for a small amount only. For lenders to earn from this type of loan, they need to charge high interest rates and fees.

Advantages and Disadvantages of Personal Loans

A personal loan is one of the most common types of loan that is being applied for by an individual. It can be used for several reasons. Mostly it is applied to household expenses such as repairs and improvements. It can also be used for large expenses like purchasing equipment or furniture. Getting a personal loan can prove to be great especially when the need for a large amount of funding is required.

Advantages:

  1. A personal loan is easy to apply for

Unlike specific types of loans such as mortgage loan or home equity loan, a personal loan grants more ease when being applied for. The process is much faster and cash is easily available. Because of its nature, a personal loan doesn’t require an agent and are often unsecured in nature. This is the loan you need for general purpose loans.

  1. Personal loan offer amount flexibility

Personal loans can range from as small amount that is equivalent to a monthly expenditure to an amount equivalent for a down payment for purchasing a car. The flexibility of the amount and the amount being granted depends on the evaluation of a borrower’s income and capacity to pay.

  1. Loan packages vary for the borrowers’ advantage

Being a general type of loan, the funds can be used for different goals and needs. Licensed money lenders often create loan packages that have offers that are specific to the lender. These offers can be for an advantage of a few, depending on who the lender is targeting as its market.

Disadvantages:

  1. Interest rates can be higher

Personal loans are often unsecured and prove to have higher interest rates. Due to non-requirement of collateral, a lender secures the risk by applying a higher interest rate for them to acquire the principal in the shortest time possible.

  1. Penalty for Pre-Closure

Since personal loans lenders earn from the interest that is being generated by the personal loan, they often charge high fees when you decide to close or pay off the debt early.

  1. Advance principal payments

When you do advance payments to lower the principal amount, it often creates an effect of higher fees paid as they charge a big amount on recomputing the loan amortizations.

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