Are Credit Cards Necessary Anymore?


Credit cards were once the faithful standby when one needed a small amount of money quickly, oftentimes just to make a luxury purchase of one sort or another. What made these financial devices convenient was the availability of an established line of credit, a manageable interest rate and the fact that this credit could be taken out piecemeal in small amounts. Most lenders won't deal in the sort of very small lines of credit offered by credit cards and certainly not in the tiny amounts in which credit card purchases were usually made.

As the financial crisis tightened, many individuals found themselves mired in the trap that credit cards can quickly become. This means very high-balances and, oftentimes, a lowering of the credit limit. Interest rates, compounded with penalties, late fees and other miscellaneous charges which aren't clear in their purpose are added to the hassles, making these products much less a convenience and much more a burden on the debtor. As credit tightened, these companies got even more arbitrary with the costs they visited upon their customers. This, of course, has had many negative effects on consumers, most often realized in the form of higher payments for less services.

These credit card companies wield a great deal of power over their client's lives. They report regularly to the credit reporting agencies and, even though one may be in good standing with two or more credit card companies and have trouble with only one of their credit cards, this can set off a devastating chain reaction that can have a significant and long-lasting impact on the borrower's life. This situation is, essentially, unavoidable and the mechanics of it make the trap's workings obvious to anyone.

If one has a particularly high balance on one of their credit cards, the company will oftentimes have a clause written into their contract which allows them to increase the financing fees, interest and other monthly charges. Expect them to institute the provisions of this clause and for them to do it without regard to one's prior relationship with the company. Given how many consumers live paycheck to paycheck, if this increase constitutes even $50 extra on a monthly payment, it may well put that payment out of the range of what can be handled by the customer. Keep in mind that this happens without any new charges being made by the consumer; this is not an issue of financial responsibility.

The issuers of these credit cards are famously deaf to any protests of these practices by consumers. Worse yet, if the consumer is unable to pay the new, increased, amount demanded by the company, the account immediately slips into past-due status. This can result in several bad scenarios that are very difficult to escape. For certain, this past-due status will be reported to credit reporting agencies and one can anticipate that their credit score, often the result of years of diligent work and responsibility, will take a nasty hit through no action attributable to the consumer.

In the worst case scenario, some of the issuers of these credit cards will close the account immediately upon its becoming past-due and demand the full balance on the card without delay. Of course, for most consumers, this means that the account becomes a collections account and all of the hassles, impacts on one's credit rating and interruptions to one's life that entails. Many of these companies do their own collections, which means that the consumer can never truly be free of the collections agency as it is legally the original creditor. There are better options.

Payday lenders have established themselves as a viable alternative to credit cards. Payday loans are not based upon one's credit score, which means just about everyone is eligible to participate in this sort of lending. The amounts lent are very small, usually a percentage of the applicant's declared income from paycheck to paycheck. This amount is determined with a goal of making sure the individual taking the loan can make the payment on time and in full, which generally constitutes the opposite model used by credit card companies, who prefer unpaid, high-balance accounts that rake in interest payments.

One may try using one of the payday lenders who operate online instead of relying on credit cards. These lenders directly deposit the funds into the borrower's bank account. Debit cards and online payment systems can be used in this way with no step involving going to the bank to deposit cash or a check. This makes them essentially as convenient as credit cards, minus the fine print laden contracts and the unexpected fees. For those looking for a better way to handle small expenses, payday loans often fit the bill in a way that doesn't end up becoming a credit trap.