The Best Alternatives to Credit Cards: Your Options Reviewed

Credit card alternatives

Credit cards carry with them an interest fee, and when used carelessly can lead to indebtedness. Instead of carrying your credit cards, there are various alternatives that offer as much flexibility without the worry of potentially and unnecessarily accruing debt or paying more than your original purchase courtesy of its interest rate. Credit card alternatives are also great for those who want a credit card, but because of issues with their credit score do not currently qualify for one. So if you’re in the market for a means of easy payment without using plastic, check out these credit card replacements.

Cash

Some things are better left untouched, and you can always opt to keep it old school and use cold hard cash. Using cash is the best way to track exactly what you are spending, and of course there is no worry of any type of monthly fees or interest when using cash. There are several obvious drawbacks to relying on cash for payments; firstly, online shopping will be practically impossible and, secondly, when you lose your cash, it’s probably gone for good.

Debit Cards

A debit card is similar to a credit card, however, the fund that your debit card withdraws from is in your transactional bank account. As is the case with a credit or prepaid card, using a debit card requires you to input your secret PIN number when making a purchase. Debit cards are typically issued with Visa or MasterCard and are therefore accepted at thousands of locations worldwide where these logos are displayed, just like credit cards. Because a debit card is issued through your bank, most do not have monthly fees.

Prepaid Credit Cards

Credit cards are very convenient and are particularly useful when shopping online. Circumstances could also be that your credit does not qualify you for a traditional credit card. If so, a prepaid credit card may be just what you are looking for. Prepaid credit cards are readily available with both Visa and MasterCard, and unlike its cousin, the credit card, with a prepaid card there is no worry of going over your limit or being charged any interest fees. Topping up the card is easy; simply add the funds to the card as and when you like. Once this balance has been depleted, the card cannot be used until additional funds are added. While there are no monthly bills or interest fees associated with prepaid credit cards, there is usually a small activation fee that ranges from $4 to $25 depending on the card, and possible monthly fees for holding the cards. These fees are usually minimal.

PayPal

PayPal is an online payment service owned by eBay allowing a PayPal account holder to buy goods and services from merchants who accept PayPal as a form of payment – fortunately this has become a very common form of payment thanks to its widespread use on eBay and many other online stores. You can connect your bank account or debit card with your PayPal account, which means that you don’t have to enter your details every time you make a purchase. Interestingly, PayPal also offer their own branded debit card that is connected with your transactional account and your PayPal account allowing you to make online purchases, money withdrawals, and in-store purchases. It can be used anywhere the MasterCard logo is found, and can even earn you 1% cash back when you make a purchase!

Secured Credit Cards

Secured cards are a great way to build credit as well as avoid some of the fees with credit cards. A secured card works by you depositing a specific amount of money into an account, and a credit line slightly more than the deposit is given to you. You are not actually spending the money that is deposited, rather spending on the credit line that is given. Monthly payments do need to be made on the card, and there are interest fees as well, however, these fees are higher than that of a traditional card.

Peer-to-Peer Lenders

Many peer-to-peer lenders, such as Kiva, Lending Club, and Prosper are available as an alternative to credit cards and even personal loans. You may be wondering what, exactly, a lending club is and what they do. Instead of relying on a financial institution for money, peer-to-peer lenders offer cash loans via the Internet, sometimes as low as $25 to those in need through individuals. Some types of peer-to-peer lending requires a credit score to qualify, however there are several types of these loans available. Fees are involved with peer-to-peer lending as this is a for profit business, although, in terms of fees compared to credit cards, the rates are significantly better.

Image: Martin Kingsley