Revolving credit is a type of lending that was designed with the best interests of the lenders at heart. It is designed to keep the borrower in debt for as long as possible, and to keep you paying as much APR as the law will allow.
The most classic types of revolving credit are payday loans and credit cards. Both of these examples operate much differently from one another, and demonstrate two different ways revolving debt can trap you.
Credit Cards and Payday Loans are the Problem
How credit cards works: Revolving debt gives you a set amount of credit, which you can use or not use per your discretion. Each month the lender sends you a bill for the balance due, and the associated interest charges.
How credit cards get you: Credit card payments can spread out over month, accruing fresh interest each month. They can end up costing more in APR than you initially used. Most frightening of all, unpaid monthly bills can absolutely destroy your credit rating, making it hard to borrow money anywhere else.
How payday loans work: Payday loans are small dollar loans, intended to be paid back upon the borrower’s very next pay date. They charge insanely high interest rates, which compound every single paycheck the loan isn’t fully repaid.
How payday loans get you: If you can actually pay the loan off within one week, these loans are not too harmful. But even missing one payment can end up costing you hundred, even thousands, of dollars for a $200 loan. These loans are extremely easy to get, even for those with bad credit, which is why they remain so popular despite the danger.
Installment Loans are the Answer
Revolving credit is also known as revolving debt. Lenders realized how scary “revolving debt” sounded so they softened their image, and call it revolving credit now. But the core principles remain the same.
The answer to revolving debt is an installment loan.
Installment loans are fixed. They are rock solid. They are dependable. With an installment loan you borrow a fixed amount of money. You are given a repayment schedule do you know how much each payment is, when each payment is due, and how much of each payment goes toward the principle and the interest.
The amounts don’t change, nor do the interest rates.
One loan, one APR, one simple process. Best of all, it won’t impact your credit.