Clash of the credit titans: will cards or loans help you?

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February 23, 2011

Australians are looking to personal loans as a debt consolidation fix-all, after being overwhelmed with record-high credit card debt at the end of 2010. RateCity recorded a 57 percent increase in the number of applications for personal loans through the website in

December 2010 compared to December 2009.

In December 2010, credit card users racked up a total of $49.27 billion in debt - an average of $3315 per account. But before making a big decision, have a look at the pros and cons for credit cards and personal loans.

Credit cards

  • Flexibility: Borrowing more with your card is as easy as a swipe or entering your details online. Your account can also be managed with a few clicks of the mouse.
  • Balance transfers: The common credit card consolidation technique, which pulls all of your balances into a new card, gives you a particularly low introductory rate for a limited time.
  • Rewards: Frequent flyer points and discounts can help you recoup a small percentage of your spending.


  • No debt limit: It's easy to bump up your balance with impulse purchases, and lenders are always more than happy to increase your limits.
  • No repayment schedule: Leaving your debt unchecked and only repaying the minimum requirement could be disastrous, dragging your debt along for years.
  • High rates: After the introductory period, the high interest charged by cards can take a heavy toll on your debt. Interest on credit cards is generally higher than personal loans.

Personal loans

  • Stability: With regular repayments, borrowers can schedule their finances to see when their debt would be paid off. If the rate is fixed, they can plan all of their payments and plan years ahead.
  • Debt cap: Unlike a credit card, your debt won't ever increase due to undisciplined spending.
  • Lower long-term rates: Some fixed personal loans offer lower rates over the course of your repayments because you have committed to paying off your debt in a set time period.


  • Inflexible: Changing the terms of the debt can be difficult, and redraw options are usually unavailable for the loan.
  • Fees: Application fees and missed repayment fees can add to your regular costs.

The verdict
The introductory rates for credit cards and their flexibility makes them suitable for short-term debt, but spenders who don't pay back their debt quickly will get bitten by high rates. Personal loans are generally better for longer loans due to their fixed rates and repayments.
But luckily, even if you still don't know what you want, you can always compare both types of loans at RateCity to make sure you get the lowest rates and fees.



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