1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair
Isaac).
2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% -
30%!
3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.
Borrowing a Payday Loan v/s Borrowing from a Line of Credit v/s Cash Advance on a Credit Card
Payday loans are much more expensive to
borrow than borrowing from say a line of credit at your
bank or cash advance on a credit card. Have you ever wondered
what the difference between these 3 items is? Which one
is the cheapest option, and which one is the most expensive?
We will compare the total costs of borrowing from each of
these 3 sources.
Say you borrow $500 from each of these
sources of financing. Here's how the results compare:
Payday
Loan
Credit
Card Cash Advance
Bank
Overdraft Protection
Borrowing
from a line of credit
Interest
-
$3
$3.52
$2.6
Borrowing Fees
$75
$3
-
-
Total Cost of Borrowing
$75
$6
$3.52
$2.6
Cost of Loan in % **
390%
32%
19%
13%
** The Cost of Loan in % format is calculated
by:
Dividing 52 weeks of the year by 2 =
26 weeks
26 weeks x $75 = $1950
$1950 / $500 = 390%
Here's how you compare these sources of financing
graphically:
As you can conjecture from the graph above,
borrowing from a line of credit is the cheapest option ($2.60)
with bank overdraft protection coming in 2nd at ($3.52).
Cash advance from a credit card is 3rd with ($6.00) while
payday loans are the most expensive to borrow, at a whopping
$75!
