Your credit limit with revolving credit is based on your credit payment history and income. If you use your credit line, you must make monthly minimum payments to pay it back. Some revolving credit lines have an annual fee, others do not.

Revolving credit is the kind of credit people get into trouble with. It is a convenient way to borrow, but it often will become an endless pit of minimum payments and barely paying the interest, let alone the principle. Also, with revolving credit, the interest can be 18% or higher, so it is much higher then an installment credit payment.

One trick of revolving credit is that as you pay off your debt, the minimum payment is also reduced. So, this often will extend the time it takes to pay off the debt, and increases how much you end up paying in interest.

Revolving credit, does have its advantages. It is no doubt convenient, and it eliminates the need to carry a lot of cash. It is also a quick way to establish you as a creditworthy risk for future loans, say if you want to eventually buy a car or house. Another benefit is that you are sent itemized monthly statements which can be useful to you when you want to track your expenses. However, all of the advantages go out the window if you do not have the self control to only use it when needed, and comparison shop first.

Installment debt is the kind of debt you get into with a big ticket purchase such as a home or a car. It is a debt where you take out a specific loan amount, and you have an interest rate on it, a term for repayment of the loan, and the payment is amortized so that you pay equal payments over the life of the loan.

Installment debt offers lower interest rates and an amortizing repayment schedule, which means that you spend a lot less then you would buying the same thing with revolving credit.

Let's just look at an example. Let's say you get an installment debt loan for $2,500 and your twin gets a revolving debt loan for $2,500.

Because yours is installment, your interest might be 8% or 9%, but let's say 10% for the sake of being as accurate as possible.

Your twin has an interest 18.5% on their credit card.

Your installment loan sets up an amortization schedule for you to repay your debt in 4 years.

Your twin, making the minimum payment would spend 30 years paying off the same debt.

You would pay $544 in interest over the life of the loan.

Your twin would pay $6,500 in interest over the life of the loan.

As you can see, installment debt has its advantages.

Obviously for something like groceries, and little things you intent to pay off at the end of each month with your paycheck, getting an installment loan makes no sense. But for cars, houses, or any purchase that exceeds you monthly income, installment debt is the best debt option, even if it does not offer the same flexibility or convenience of a credit card.