Parenting is hard. Aside from raising young’uns and teaching them important life lessons like saving money, parents also need to manage a household, provide for the family’s needs, and save for their children’s education and future. And to do this, they sometimes need to get into debt, either through a loan or by using a credit card. But which of these two are the better option for parents? Here are a few tips on when to use either.
When to get a personal loan
- Temporary cash difficultiesIf you’re short on cash, you can use your credit card but this could cause problems, particularly when paying your debt. Every cent counts so you might not be too pleased with your credit card’s higher interest rate. A personal loan would be the better choice during temporary cash difficulties because you’ll be able to get a larger amount for a lower interest rate.
- For a major expenseIf you’re up for a major and expensive outlay (e.g. tuition for your childs private school, moving to another state), a personal loan would be an excellent way to finance it because of lower interest rates.
- Medical emergenciesIf you had a medical emergency that your insurance doesn’t cover, try to get a personal loan. Time may be a concern here but a personal loan is a better option in this instance. If you miss a payment with a credit card, its interest rate would increase sharply, making it more difficult to settle.
When to use a credit card
- To track expensesThe great thing about credit cards is that they make it easier to track your expenses. Through your credit card statement, you can account for every dollar. It also makes budgeting easier since you can sort your spending.
- When shopping onlineYou have two payment options when purchasing something online: a debit or credit card. Between these two, the credit card is the better option because it has better fraud protection. A credit card won’t prevent identity theft and has fraud liability but in case you get defrauded, you won’t lose any money unlike a debit card would.
- Limit spendingCredit cards with smaller credit limits or prepaid credit cards are another good way to control your budget or keep your children from overspending. This would teach your children to be more responsible with their finances. You can also use a regular credit card, but look for one with a smaller credit limit. But for this to work, you have to pay your card in full every month.
- When travellingYou’ll need your credit card with you when you travel. With a credit card, you won’t have to walk around with wads of cash. If you use your credit card for the plane tickets, you might even get travel insurance (depending on the card). Better yet, you can use your credit card for paying in another currency.
- Collecting rewardsIf your credit card has a reward program, you can take advantage of its promos and points, which you can exchange for groceries, fuel rebates and other items. Take note however that cards with rewards have pricey annual fees so you’ll have to determine whether the expense is worth it.
About the Author:
This article was brought to you by Simon. Simon has been working in the finance industry for many years and has written many helpful articles about personal loans, credit cards and personal finance management.