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When you need to borrow, you might consider a credit card or a personal loan. Credit cards are ideal for short-term expenses that you can pay off in a month, while personal loans are best used for long-term expenses, financing a big purchase or consolidating multiple debts.

Your decision to use a credit card or personal loan will depend on your credit score, how much you want to borrow and how long you have to repay it.

How credit cards work

Credit cards are one of the most expensive forms of financing, with interest rates in the double digits unless you have credit good enough for a 0% promotional offer.

On your credit card’s payment due date, you’re obligated to make a minimum monthly payment — generally around 1% to 3% of the balance — but you’ll need to pay it off in full to avoid accruing interest. Interest is calculated based on the average daily balance during the month, not the ending balance.

Credit card debt is “revolving” debt. You have a limit on how much debt you can have on the card; the amount of credit you have available from month to month depends on how much you spend and how much you repay.

As a general rule, credit cards are unsecured, which means they aren’t backed by collateral.

Because of their high interest rates, credit cards are best reserved for short-term financing. Use a credit card only for purchases that you’ll be able to pay off by the due date, like daily expenses or monthly bills. You could use cash or your debit card for these same purchases, but credit cards have benefits outside of free short-term financing. Many cards come with cash or travel rewards, typically ranging from 1% to 2% of what you spend, or spending protections, extended warranties and trip insurance.

How personal loans work

Personal loans may be secured or unsecured. They often have lower interest rates than credit cards, especially if you have good credit. Unlike credit cards, a personal loan is “installment” debt — you get money in a lump sum and make equal payments over a specified period — usually two to five years. Your loan payments will include principal and interest.

Personal loans are best used for longer-term financing. This could include things like expenses for adopting a child, starting a small business or consolidating credit card or other debt. Since personal loans typically have lower interest rates than credit cards, they’re a better option if you aren’t able to pay off your balance in full each month.

» MORE: What is my credit score?

A credit card vs. personal loan to consolidate debt

Credit cards and personal loans can both be used as a tool to roll multiple debts into one single payment.

If you can pay off your debt relatively quickly and your credit is good enough, a balance transfer credit card may be the best choice. This type of credit card lets you move high-interest debt to a card with a 0% introductory interest rate. You should have a plan to pay off the entire balance before the 0% rate period expires, because you could get hit with interest on your remaining balance, as well as retroactive interest on your initial balance. Some cards charge a fee of 1% to 5% on balance transfers; others don’t.

If you might need help staying on track or require more time to pay off your debt, a personal loan with fixed payments may be a better approach. Consolidating credit card debt with a personal loan typically makes sense only if you get a lower interest rate on the loan than you pay on your existing debt.

Credit cards and personal loans are treated differently on credit reports. Credit scoring formulas weigh how much of your revolving credit is in use; a credit utilization ratio over about 30% may reduce your scores. Personal loans are installment debt. Moving a credit card balance to an installment loan may reduce your credit utilization ratio.

Someone with a high score typically has both types of accounts.

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay

Updated April 6, 2017.

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