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Revolving credit: why a loan is smarter than a credit card

You’ve probably been told that credit cards are bad because the interest rate is high. But that’s not the only reason—it’s actually because they’re “revolving credit.” If you’re wondering what the hell revolving credit is, you’re in the right place.


Let's ask an adult


Revolving credit comes in the form of a credit card or line of credit that lets you immediately re-borrow what you paid back on principal. And many revolving credit products allow you to pay back only the interest. It’s a major reason why so many people find themselves stuck in what feels like an endless cycle of debt.

How revolving credit costs you more than a loan


The psychology of spending

The thing about revolving credit is that it makes it easy and convenient for you to stay in debt. When you pair that with the psychological high of copping the latest pair of shoes / iPhone / whatever your poison is, then it’s not the interest rate you should be worried about anymore.

Because let’s face it, whether you get a 5% or 30% rate, you’re probably going to shop and borrow what you paid back the same way. It’s the perfect recipe for ongoing debt.


What you really need is a different set of external rules and boundaries that prevent you from getting into and staying in debt. What you need is a personal loan (AKA. an installment loan).

A smarter way to think about borrowing


Unlike revolving credit, your personal loan would have a term and require you to pay back interest AND principal in every payment, which means you have a set deadline for paying it off and getting out of debt. Actually paying off that loan is what will help you pay less interest. We’re taught to focus on interest rates (“Shop around for the lowest rate!!”), but we should be rewiring our brains to think about the type of credit product we’re getting and the total cost of borrowing instead.

Chantel Chapman is Mogo's Financial Fitness Coach. She teaches you how to be an adult, and is also the host of our Adulting 101 events. With over a decade’s experience as a mortgage broker, Chantel recognized a need for financial education with many of her first-time homebuyers, so she began creating custom content to help guide them. Chantel is the founder of Holler For Your Dollar, a consulting firm that jump-starts anyone who’s ready to dive into the world of Adulting or entrepreneurship. Her role at Mogo puts her skills to use creating and teaching digestible, yet educational financial literacy content geared to millennials and daring entrepreneurs.

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