Credit card is no substitute to personal loan

There are about 12 million credit cards in the wallet of Australians having an outstanding debt of more than $40 billion. Credit card companies charge higher interest rate in comparison to rate applicable on a personal loan. Yet, credit card is an immensely popular device, seen by many as the most convenient option to withdraw large amount of cash in emergency.

The greatest advantage of credit card is the flexibility of its use, and this is the reason why people prefer using it most of the time when they are in need of urgent cash or they have to make some big purchase. However, because of the high interest rate charged by the credit card companies, there is always the danger of falling into the vicious circle of debt trap. You need to spend judiciously with your credit card – if you don’t know how to stay within budget, you better stay away from these cards.

When you are selecting a credit card, you have to consider a few things, such as interest rate charged on cash advances and outstanding balances in addition to the interest free period. If you are making your payments regularly every month and not keeping any outstanding balance on the card, you should naturally choose one that gives you longest interest free period. However, if you are not paying the entire outstanding balance at the end of every month, you will be better off choosing a card that charges lower interest rate even if it gives low interest free period.

Personal loan offers a number of advantages in comparison to credit cards. First of all, it can help you stretch your repayment schedule over a long period without paying too much on interest charges. At times, they can be used to consolidate your credit card loans at a much cheaper interest rate, if you are thinking of cutting your credit card dues. Sometimes, there are some merchant fees on big purchases and you end up paying a lot more than the price applicable for cash purchase, and in those situations, you may think of taking a personal loan and paying by cash rather than paying through credit card.  This way you are also discouraged from impulse buying, which is quite a big problem for people who are carrying credit card in their wallet that gives them a false confidence of having enough surplus cash.

Lowering of debt rate in Australia is due to global economic recession

The current economic recession that has gripped the entire globe is proving to be too long and severe. With people in constant threat of losing their job, they are cutting down on their debt drastically. The personal credit growth in Australia in recent times has fallen to a level last witnessed at the time of 1991-92 recession and is shrinking continuously for the past eight months. The level of personal borrowings that includes credit cards, personal loans and margin loan has also gone down by 0.2% in January 2009.

The famous economists Savanth Sebastian feels that the present economic downturn is being seen by people as the perfect time to clear off all previous debts. People have almost stopped taking debt so they are not burdened to repay the present debt in the event of a job loss that looks a real possibility in the scenario of weakening global economy. They are increasingly getting concerned about the worsening economic situation and spending their money in paying off all the piled up debts as far as possible and getting control over their household budget. There is a drastic rise of 22.2 per cent in repayment on credit cards due during December 2008. This is the largest monthly increase in terms of percentage in credit card payments since May 2006. The credit card loans have also increased in recent times at the rate of 3 percent per year, which is the slowest ever recorded.
The scenario of economic slowdown still appears to be quite gloomy and there are reports of unemployment levels rising in the next two years. As per the federal government, the forecast of unemployment rate in June 2010 was recently upwardly revised to seven percent as compared to the government’s figure of 4.9 percent given in January 2009. This revision translates into a huge number of Australians getting unemployed by next year, almost close to 250,000 new Australians adding to the list of those who were unemployed and hence estimated to apply for unemployment benefits.
Such a gloomy picture of the economy is taking its toll on the debt scenario in Australia in a big way, and there is a general concern to get rid off the existing liabilities created by earlier debts as early as possible to survive the rough phase in the economy that is not showing signs of improvement even after one year since things started turning red. A gloomy picture on the horizon is having a negative impact on the consumers in general and people are thinking twice before spending big money. It is definitely going to affect the performance of companies involved in manufacturing consumer goods and products because of shrinking demand in the market.