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Credit Card Alternatives

Credit cards are an excellent way to develop credit and are sometimes your sole choice for making online transactions. Credit cards, on the other hand, might have certain risks if they are not utilized appropriately. They can, for starters, entice you into high-interest loans. They may also harm your credit history if you can't make your minimum payment each month or if you go over your credit limit. There's also the possibility that your credit card information may be taken.

For these reasons, we understand why some consumers are hesitant to use credit cards for day-to-day expenditures. You may not be eligible for a credit card at all if you have no credit history or a terrible credit history. Whatever the situation may be, here is a list of credit card options to consider for making purchases or obtaining credit.

Non-Credit Alternatives

Chequing Accounts

It's likely that you already have a chequing account; in fact, it's where your paycheques are most likely deposited. Chequing accounts don't help you develop credit, but they may help you manage your spending, keep on track with your budget, and avoid spending more money than you have. If you don't want to carry cash, the debit card that comes with your checking account might be the safest piece of plastic in your wallet. There may or may not be monthly fees associated with your chequing account, depending on the bank and account you pick. Before you choose one, think about how many transactions you do each month and which chequing account is ideal for you.

Prepaid Cards

Prepaid cards are simply gift cards with the logo of a credit card issuer on them. You just load a prepaid card with any amount of money up to the set maximum (for example, you may buy a $50 card, $100 card, $500 card, and so on) and use it to make transactions.

Prepaid cards, like chequing accounts, can not help you develop credit, but they may educate you how to appropriately handle a credit limit and assist you in making online purchases. Because you can't carry a balance on a prepaid card, there are no interest costs, but you may have to pay a purchase fee and/or a monthly fee; as a result, prepaid cards may be a highly costly method to spend money you already have.

Credit Alternatives

Secured Credit Cards

A secured credit card might help you restore your credit if you can't acquire a standard credit card because your credit score is too low. To start an account with a secured credit card, you must first pay a deposit to the credit card provider. The deposit is usually between 100 and 200 percent of the credit amount requested. For example, if you want a $500 secured credit card, you'll need to put down a $500-1,000 deposit.

(Additionally, there will be a monthly cost.) If you are unable to make a payment on your secured credit card one month, the credit card company may withdraw cash from your deposit to cover the amount. Your secured credit card's payment history is reported to credit bureaus, so it's crucial to use it responsibly and know that it's helping you improve your credit score.

Charge Card

Charge cards aren't as common as they once were, and American Express is one of the few firms that still offers them. A charge card is effectively a credit card with no limit if you have a good credit history, but it comes with the assumption that you will pay your debt in full each month. Your charge card may also be a rewards card that may let you build up even more points than a credit card with a modest limit for a significant annual fee (anything from $100-600). However, you must be cautious: if you cannot afford to pay the debt in full, charge card interest rates are quite expensive – often in the 30% level – so you should only use your charge card if you are certain you can pay it off.

Personal Loan or Line of Credit

Finally, if you were considering acquiring a credit card to have access to a lump amount of money to make a purchase or utilize in an emergency, you have two additional options: a personal loan or a line of credit.

If you already have a purchase in mind, a personal loan might be acceptable. You'd need to be authorized for the amount you need to complete the purchase, and the interest rate on your loan would be determined by your credit score — the better your score, the cheaper your rate. The entire amount borrowed plus interest fees over the number of years you wish to repay the loan are totalled up and divided by the number of months the bank wants you to repay the loan; that amount must be paid each month.

If you only need money for an emergency, a line of credit can be a better alternative. On your online banking, your line of credit appears as another bank account, allowing you to move cash to a chequing account as needed. Your personal line of credit will have a variable interest rate tied to Prime (i.e. Prime +/- 1.00 percent), similar to a home equity line of credit, and the only payment you'll have to make each month is the interest on whatever amount you've borrowed.

Both a personal loan and a loan of credit may help you develop credit if you are a conscientious borrower who always makes at least your minimum monthly payments.