Both overdraft protection and credit cards are, essentially, personal lines of credit. 💯They advance you money which you must repay, o💯ften with interest.

In general, 🔯deciding between overdraft protection or a credit card depends on several factors, such as the fees involved and how you use the available credit.

How an Overdraft Works

If you have 澳洲幸运5官方开奖结果体彩网:overdraft protection at your bank, you can spend more than the actual amount in your attached checking account. When you do, the check won't bounce. Instead, the bank will honor it—𓆏advancing you the am꧒ount, in effect. In exchange for this service, you’ll pay the bank interest on the amount by which you overdraw your account.

Some overdraft lines of credit will charge you a fee for each overdraft, and some have annual fees instead of, or in addition to, overdraft fees. Since an overdraft basically establishes a personal line of credit, the amount the bank will let you borrow will depend to some extent on your 澳洲幸运5官方开奖结果体彩网:creditworthiness, as well as the bank's own policies.

How a Credit Card Works

A credit card also functions as a line of credit, specifically a 澳洲幸运5官方开奖结果体彩网:revolving line of credit (meaning it is flexible and open-ended, as opposed to a finite loan that must be repaid within a certain period). That line is as big as your𒊎 credit limit—that 🤪is, how much you can charge on the card.

Whenever you use a credit card, you 澳洲幸运5官方开奖结果体彩网:are basically borrowing funds from the credit card company𒅌 to buy goods or services. When you get your monthly statement, you then repay the company for the money it adva❀nced you.

Now, if you borrow funds by making purchases with the card, and you can’t immediately repay that amount in full—if you start carrying an outstanding balance from month to month, in other words—you’ll also be charged interest on that amount. Credit card 澳洲幸运5官方开奖结果体彩网:interest rates can vary significantly depending on the card and your 澳洲幸运5官方开奖结果体彩网:credit score. Many credit cards also charge annual fees.

Overdraft vs. Credit Cards: Which to Use?

Choos﷽ing between overdraft protection or a credit card depܫends on several factors:

• Do you have access to both options?
• Do both options give you enough 澳洲幸运5官方开奖结果体彩网:available credit to cover the amount you need to borrow?
• Which one has a lower interest rate?
• Is there an overdraft fee when you use the overdraft line of credit?
• Does either option charge an annual fee?

You’ll have to do the math for your specific situation to see wh🦩ich choice i💃s less expensive.

An Example of Overdraft vs. Credit Card

Suppose you need $1,200 for car repairs. Although you only have $200 in your account, you write the garage a check for the whole amount. Through an overdraft line of credit, your bank will let you borrow the money at 18% annually (assuming no 澳洲幸运5官方开奖结果体彩网:compounding, interest paid annually) and pay a ꦇ$12.50 overdraft fee. If you want to pay the loan back within a year, you’ll need to pay a total of $180 in interest plus $12.50 in fees.

Through a credit card, you can borrow the money at 💯an introductory rate of 12% for one year (assuming no compounding, interest paid annually), and the card has no annual fee. You’ll need to pay $144 in interest.

In this case, the credit card is the better choice. Of course, if the credit card charged you a higher 澳洲幸运5官方开奖结果体彩网:annual percentage rate (APR) and/or an annual fee, the advantage miওght go to the overdraft.

The Bottom Line

Both overdraft protection and credit cards have their pros and cons, and generalizing whi൲ch is better in every situation is impossible. Typically, though, credit cards work better for plann🍸ed or predictable expenses that you intend to pay off over time.

Overdraft🐽s work best in emergency situati🉐ons, saving you the embarrassment and hassle of a check being rejected for insufficient funds.