Installment Loans vs. Credit Cards: Which Debt Is Worse?

Credit Repair, Debt and Collections, Loans

Installment Loans vs. Credit Cards

When comparing installment loans vs. credit cards, it’s crucial to first define each and subsequently see the debts associated with them. Each type of debt involved can have a different impact on your credit score, and perhaps on the credit repair process.

Of course, paying off any debt on time is a good thing—but there are several factors in both kinds of debt that you’ll want to keep in mind.

Installment Loans vs. Credit Cards

Installment Credit

Installment credit involves a loan that you pay back in level payments each month. The loan’s amount is determined when you are approved, and the sum you have borrowed remains constant over time. Both auto loans and mortgages are examples of installment loans.

Credit Cards (Revolving Credit)

Both credit cards and home equity lines of credit, or HELOCs, are examples of revolving credit. This type of credit is not issued in a preset amount. There will be a limit on how much you can borrow. However, the amount you use within that specified limit is your prerogative. Most revolving loans come in the form of lines of credit, where the borrower makes charges to the card and pays them off (and repeats this process).

The Difference in Debts

There are some more detrimental or otherwise complicated debts involved with credit cards. When it comes to calculating which debt is worse for your credit score—installment loans vs. credit cards—we’ll take a look at the repercussions of each.

Installment debt is usually deemed good debt because it often leads to the purchase of a necessary, valuable item and it is relatively stable. Credit cards, on the other hand, can help with daily financial needs, but their misuse can lead to increasing debt that causes financial ruin. With an installment loan, you know precisely when the debt will end. A mortgage loan or auto loan used for financing a home or car may last five, 15 or 30 years—but it’s a set time frame.

With credit card debt, it can be more difficult to manage. While such cards offer flexibility and are easy to acquire, the debt that comes with it can present financial difficulties. Those who have trouble avoiding the temptation of using a credit card to purchase all sorts of things can easily face a mountain of debt in a short time. Some pay only the minimum amount due each month—instead of paying off the full balance—while their revolving credit debt spirals out of control. On the other hand, installment loans can provide for simpler budgeting, since borrowers know how much money they need to set aside every month.

Installment Loans vs. Credit Cards: The Credit Score Impact

Installment loans have other advantages: You typically get a fixed rate, rather than the variable one charged on most credit cards. Furthermore, your debt balance will be paid off over the term of the loan. (You could potentially carry credit card debt your entire life, if it’s left unchecked.) If you stop carrying a balance on your credit card, you should be in much better standing: debt-free with possibly higher credit scores.

Because credit card debts are less set in stone than installment loan debt payments, your credit score can be more impacted by accumulating revolving credit debt. If you have checked the repercussions of installment loans vs. credit cards, and you’re in need of credit repair services, contact Go Clean credit for quality credit restoration.

No matter what your situation, Go Clean Credit has a solution. We have many credit repair programs that are available to help you overcome your credit situation and place you back on the path to financial success. Real credit restoration is not a one size fits all model and we tailor your needs to the right program, but most people can start for just $99 per month.

We have fixed price programs that get you back on track in as little as 5 months, debt resolution solutions, programs geared toward people who have had recent short sales or foreclosures and many others. Help is just a free phone call away or you can fill out an appointment request. Contact Go Clean Credit to schedule a free consultation today.

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