Killing Credit Cards With A Loan

Thanks to a worldwide credit crunch and mounting bad debts, banks and building societies have started to curb their lending. They have withdrawn thousands of mortgages, increased interest rates on personal loans and credit cards, and started to reject far more applications for credit.

I see this as only the beginning of an even harsher clampdown on credit, as lenders tighten up their lending criteria and improve their risk management. Thus, I believe that now is an excellent time for us to wean ourselves off our credit habit. In particular, I think it's high time that we abandoned ‘plasticmania' -- our addiction to spending on credit cards.

For the record, we have around £55 billion of outstanding debt on our credit cards, which comes to exactly £2,200 per household. However, this is only an average, and millions of credit-card users have far higher balances. Indeed, some visitors to our Dealing with Debt discussion board owe £50,000+ on their plastic. Ouch!

Credit cards are useful for short-term borrowing, especially if you avoid interest by paying them off in full every month. However, because of their high interest rates, they are an expensive way to borrow over periods exceeding a year. (Unless you use a 0% credit card, of course!)
Thus, if you're looking to borrow over several years, then a personal loan is usually a much better bet than a credit card. This is because interest rates on personal loans are considerably lower

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