Five of the Countless Alternatives to Credit Cards

by Bill on January 1, 2014

debit card
As the year closes with multiple news stories on credit card theft I wonder if people know there are viable alternatives to credit cards.

A Simple and Easy Solution to Your Credit Card Problem

Debit Cards – these cards have been in Europe for years and have made there way into the U.S. as well as other areas. Banks are known for having this service attached to checking accounts of various types. Debit cards are similar to the old style ACH, or electronic bank transfer, except the transaction is instant.  

These are just like credit cards except you have two distinct advantages; 1. you can’t go over your limit regardless of the amount because it is set directly to your account; and 2. there are no hidden fees that can eat away at the card like late charges and interest on minimum payments and such.

Pre-Paid Credit Cards – these are a cross between a debit card and a true credit card in that you don’t need a bank account to hold one; but at the same time, like a debit card, you place money directly on the card and cannot have a negative balance. Think of pre-paid cell phones and you have the same idea. This is an excellent way to budget spending for a child or requiring a spending limit for yourself on a shopping day such as Black Friday.

Pre-paid cards are also better than credit cards in that if they get stolen, only the amount on the card is taken and you incur no further penalties. Also, no personal information is lost if someone skims one of these cards.

Banks, Credit Cards and Old Fashioned Security

Bank Overdrafts – when used in conjunction with your credit card these can be a much better method of borrowing money than simply using a credit card alone. The overdraft limit is set by your bank depending on what you deposit into the account each month. If you are good at putting in roughly the same amount each month, this provides a bigger amount of overdraft protection.

Why? It allows your account to go into negative numbers without being closed. While banks charge high rates and fees for overdraft, these are certainly no where near the 20 percent interest credit cards charge each month if you don’t pay off the full amount.

Another benefit often overlooked; if you put the money back each month, thereby paying off the amount taken out, the bank won’t close the account. Credit cards have a tendancy to close the account if you start paying off the monthly balance frequently because they are not making any money from you.

Credit Unions – credit unions are similar to banks in that they can offer virtually every service a bank can provide. The difference between them is that credit unions tend to be more localized, thereby being familiar with their community needs; and they are owned by the people who hold accounts with them.

Loans taken through credit unions have low interest rates and nearly no fees. Why? Laws place limits on the amount of interest charged by credit unions, and there are no stockholders demanding a profit.

Automated Payments – yes they still do these. You can easily set this up with utilities, car payments, even online services through PayPal (they take the money from your bank and hand it over to the third party on the scheduled date). No muss, no fuss, no fees (most of the time). If there are any fees, they are most certainly cheaper than credit cards.   

How many ways can you come up with? Think about it and get back to me.

William Swan, writer

 

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{ 2 comments }

Crystal January 2, 2014 at 4:36 am

Of the five alternatives you listed, I like the pre-paid credit card best. I’m hesitant to use my debit card after my BIL had his compromised and it took about a week for him to get the money restored to his bank account.

You mentioned that “Credit cards have a tendancy to close the account if you start paying off the monthly balance frequently because they are not making any money from you.”

This has not been my experience. I haven’t had credit card debt in well over a decade and use my main card for everything possible to earn points that I then redeem for gift cards for the kids and grands at Christmas. My card issuer makes nothing off me personally but has not cancelled the card. I also have a few other cards that are rarely used but have not been cancelled. On the other hand, the credit card company does receive a small percentage from the merchant on each purchase I make so it’s actually a triple win – convenience for me, immediate payment for the merchant and income for the card issuer.

Am I advocating credit card usage? Only if you have a no fee card, can control your spending and you always pay the bill in full each month.
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Bill January 7, 2014 at 3:19 am

I went to pre-paid credit cards because they are easier for me to track my money with. AS for closing the account – yes I have had that happen. I also had a collection agent tell me some banks did this because it was unprofitable for them. That was a few years ago, now I’m not sure if this has changed or not since you mention it.

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