Forget about credit cards – here are some cheaper borrowing options

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Before you switch for a credit card, think about these more affordable ways of borrowing.

Sometimes unforeseen expenses can crop up at the worst times. Your car could break down or you could face a home repair. Or you could lose your job, which isn’t an expense in itself, but it leaves you in the same boat of needing the money in a pinch. In these situations, you can use your emergency fund – if you have one.

But what if you don’t have emergency savings or if that money runs out? If you need to borrow, you can assume that credit cards are your best backup option. But in fact, here are some more affordable avenues to consider.

1. Personal loans

With a personal loan, you can borrow money for any purpose, and these loans tend to offer more competitive interest rates than what credit cards charge. Plus, with a personal loan, you’ll usually pay a fixed interest rate on the amount you borrow, so your payments won’t increase over time. Interest on credit cards, on the other hand, can be variable.

To qualify for a personal loan, you will usually need a decent credit score, as these loans are not secured by a specific asset (like a house or valuables). But there are also personal loans for borrowers with poor credit – you might end up with a high interest rate if your score is to work.

2. Home equity loans or HELOC

With a home equity loan, you borrow a certain amount of money against the equity in your home. (Equity is the part of your home that you outright own.) You then pay that amount back over time, just like you would with a personal loan. With a HELOC, which stands for Home Equity Line of Credit, you get a line of credit that you can draw down over a period of time – usually up to 10 years. Then you simply pay back the amount you borrow.

Both options are fairly easy to qualify if you have enough equity in your home, and they can be even more affordable than personal loans from an interest rate perspective. Additionally, these options work well for homeowners with less than excellent credit, as eligibility is more dependent on available equity than creditworthiness. (Although credit rating also plays a role.) The flip side is that if you fall behind on your home equity loan or HELOC payments, you could risk losing your home, since your property will be used. as collateral for the option you choose. .

3. Cash refinancing

If you have a lot of equity in your home, cash refinancing is also an option. With cash refinancing, you borrow more than your mortgage balance and use the rest of that money as you see fit. The downside is that if you fall behind on your loan payments, you risk losing your home. But depending on how refinancing rates are now, you’ll pay a lot less interest on a cash refinance than on a credit card, or even a personal loan, home equity loan, or HELOC, for that matter. .

To qualify for a cash refinance, you’ll need more than solid home equity. You will also need a good credit score because you are re-signing a mortgage. And you’ll need to prove to a lender that you have a stable source of income that allows you to keep up with your new loan payments.

Don’t rush to swipe this card

If you need the cash and haven’t hit the max on your credit cards, you can assume that charging them for expenses is the best option. After all, it’s quick, it’s easy, and you don’t have to go through the process of applying for additional credit because it’s already available to you. But remember, credit cards are notorious for charging a lot of interest, which will only make your debt more expensive to pay off. You’d better look for cheaper alternatives that cost you less and make the payment process easier overall.

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