Credit Card Alternatives: In Your Wallet & Beyond

There are plenty of credit card alternatives for those who don’t want to use a traditional credit card. A person may look for a credit card alternative because they’re fed up with high-interest rates, annual fees, and other hidden costs.

They may also have security concerns since data breaches could occur among retailers and restaurants. Or, perhaps, the individual is trying to get out of debt and wants to avoid using credit altogether.

Whatever the reason, consumers have many options for various credit card alternatives, ranging from personal loans to digital wallets.

Debit cards

A debit card is one of the most common alternatives to a credit card. Debit cards are small plastic cards that are easy to carry. You can even get cash at stores using your debit card, which is usually available at a low or no annual fee.

A debit card gives you easy access to your money and lets you make purchases without affecting your credit score. This type of card tends to require a little more discipline than a credit card.

Debit card users could decline their card if they spend more money than they have in their checking account. Otherwise, overdraft fees could apply when overspending.

Personal loans

An alternative to credit cards is a personal line of credit, which works similarly to a credit card but offers more flexibility. You can use personal loans for expenses that are hard to estimate and may not be covered by your monthly income.

Personal loans typically offer lower interest rates than credit cards. Because they’re installment loans, they’re more affordable for most consumers and have predictable payments that make budgeting easier.

In addition, you can know exactly how much money you’ll need to borrow and when you’ll be out of debt.

Using a personal loan to pay off credit card debt is one way to reduce interest rates and improve your credit score. Many credit cards carry high-interest rates that can be difficult to manage. With a personal loan, you can pay off your debt at lower rates and without incurring late fees.

Loans from friends or family

Another option is to borrow from friends or family. This method is much cheaper than a credit card, and, according to Experian, most of these loans come with low-interest or even no interest.

However, you may want to set up a repayment plan if you plan to pay off the loan early. Otherwise, it might damage your relationship with your friend or family member.

Secured loans

A secured loan may be an option if you don’t have a lot of money or qualify for a credit card. Unsecured loans come with high-interest rates; however, secured loans are backed by collateral, such as your home or car, according to Experian. Secured loans may vary depending on the lender, so check your options before deciding.

A secured loan may require a borrower to put up some kind of collateral like a vehicle title. It’s a way to reduce the lender’s risk and give you a lower interest rate.

It’s worth noting a secured loan may not be suitable for people with bad credit because lenders may foreclose on the collateral if the borrower is unable to make their payments.

Gift cards

Gift cards allow businesses to accept payments from customers who may not have credit cards. These cards are often prepaid, meaning that they contain cash value.

The Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act provides consumer protections for gift cards relating to expiration dates and fees.

Many gift cards are merchant or store-specific, meaning you can use them only at a specific retailer or restaurant.

There are also more flexible gift cards like Visa, American Express, and Mastercard prepaid cards, which a cardholder can use online or in person at any merchant that accepts the respective brand.

Short-term loans

A short-term loan can be helpful in times of financial emergency.

These loans can help people cover significant expenses for a short period. Short-term loans are usually unsecured, but some secured options are also available.

Usually simple to apply for, short-term loans are a good choice for those who need money quickly, especially since most lenders are available online.

You’ll typically need proof of employment and good credit to qualify. Once approved, you potentially receive a loan amount within 24 hours.

Online payment processors

If you’re looking for a credit card alternative, PayPal is a popular choice. Many other online payment systems provide similar services, which include Square and Stripe. When deciding which one to use, Shopify recommends considering the fees and security features.

One of the main differences between PayPal and credit cards is the processing fee. As a credit card alternative, PayPal offers a lower processing fee than credit cards, but not as common as credit cards. Even so, it’s a good choice if you’re looking for a quick way to transfer money.

Another advantage of using PayPal is instant debiting. It connects to your bank account, or you can link your credit or debit card to it. There’s also a PayPal debit card that offers 1% cash back and a one-click payment option.

In addition to this, PayPal allows you to store information from multiple bank accounts.

Peer-to-peer lending

Peer-to-peer (P2P) lending bypasses traditional financial institutions, with borrowers and lenders connected online, according to Capital One. Most P2P platforms require applicants to qualify for a credit score of at least 600. Higher scores can get you a better rate and longer terms.

P2P lending is an excellent alternative to payday loans, but you must consider several essential factors. For starters, interest rates are lower than credit card rates, meaning you might save more money on the loan.

Another benefit of P2P lending is its short repayment term. The repayment period is typically one to five years, depending on the agreement.

You can submit online applications within minutes, and in some cases, you can obtain approval in just a few days. The process is faster than ever with most of these platforms, and you can get your money in a matter of days instead of weeks.

Guarantor loan

Taking out a guarantor loan involves having a person cosign as a guarantor for the borrower, according to Experian. The guarantor must also be financially capable of making the repayments.

This type of loan usually comes with a higher interest rate, so you should know what you’re getting yourself into if you apply for a guarantor loan.

In default, the lender may ask for money from the guarantor’s bank account.

After that, the debt goes through standard collection procedures, including passing the debt to a collection agency or court action. The default will also appear on both the guarantor’s and borrower’s credit files.

Digital wallets

Digital wallets offer an accessible alternative to traditional credit cards, according to Bank of America.

They’re typically more secure thanks to their advanced encryption technology, and your card information is never shared with the merchant when you purchase. A digital wallet also offers more flexible spending options, such as the ability to set up recurring payments.

One of the most widely used digital wallets is Apple Pay. Apple Pay allows users to store their credit and debit cards in the Wallet app on iOS devices, such as iPhones or iPad.

When making a purchase, they can simply hold their device to a contactless reader and confirm the payment with their fingerprint. Apple Pay is accepted at millions of stores and restaurants worldwide.

Another popular digital wallet is Google Wallet. Google Wallet works similarly to Apple Pay but for Android devices. Many places that accept Apple Pay also take Google Wallet, so you should have no trouble using it when out and about.

Digital wallets can be used by a growing number of merchants, both online and offline.

Virtual payment cards

Virtual payment cards function like regular credit cards but don’t come with physical card numbers. Certain financial products, such as Vital Card, offer this feature to cardholders.

The virtual credit card number is usually only valid for a single transaction. This prevents the websites from saving financial account information.

Virtual payment cards are convenient and easy to use. You can apply for one online or through a third-party service. They also help you avoid the risk associated with fraudulent sites.

The downside, however, is that processing in-store refunds can be challenging if you need to provide the card you used to purchase.

Still, virtual cards can save you time by eliminating the need to input your credit card number manually. Virtual cards are often delivered through a secure email or payment portal, so you can easily copy and paste the disposable card number when making a purchase.