While a personal line of credit is more commonly categorized as a loan, in reality, it functions more like a credit card. That’s because a line of credit is a form of revolving debt, in which the money you borrow is paid back... only to be borrowed again. There are other similarities between a line of credit and credit card, however, there are also some key differences. Understanding how these two financial products compare and contrast will help in determining which option is the best for a consumer’s personal needs.
According to a study in December 2019 by the Federal Reserve, Americans still continue to use debit cards nearly twice as often as credit cards, but the total value of purchases utilizing credit cards exceeded debit cards by nearly 30%. What’s the difference between making payments with a debit card versus payments with a credit card? It depends on what you value most!
As of September 2019, Americans held over $1 trillion in combined credit card debt, accounting for 26.2% of national consumer debt. It’s evident consumers are having problems managing and paying off their credit card bills, as mounting interest and penalties make it hard to get one’s head above water.
When dealing with credit cards, there’s a lot of numbers and figures to keep in mind. One important number to keep track of is the credit utilization ratio, which is the percentage of a cardholder’s total revolving debt (or credit balance) on all of their active credit card accounts, in comparison to their total available credit. For example, if someone has one credit card with a $1,000 limit and a balance of $100, they have a credit utilization ratio of 10%.