Using Other Types of Lending to avoid Credit Cards


Credit cards are one of the most used and abused?some would actually argue abusive?types of lending on the market. These financial products are generally a revolving account which has a total figure much higher than the owner could reasonably expect to pay back in a month. They're advertised as a convenient way to pay for large items over time but, in reality, they usually function just as their issuers intend: The balance keeps inching up every month, along with the interest payments and fees and many years of debt for the consumer is created.

Credit cards have only recently been given a great deal of scrutiny and criticism by regulators. The normal tactic employed by these companies is to set up shop in a state that has no ceiling on the amount of interest they may charge. These interest rates are frequently advertised as very low but are subject to oftentimes arbitrary increases by the issuer. Of course, once that interest rate goes up, it seldom, if ever, comes down. Applied to a balance of thousands of dollars, this means the consumer can easily be buried in debt before they know what's happening.

There are alternatives to credit cards which are inherently more disciplined and less-entangling forms of lending. Among these are cash advance, payday loan and car title loans. These financial devices are not designed to generate debt that continues to increase over a period of years and not designed to make the debtor subject to long-term arrangements which may be modified or even altogether rewritten, for all practical purposes, by the lender once the debt trap is sprung. These are short-term lending products designed to be taken out quickly and paid back in full in a very short order.

Credit cards are built on a model that requires wishful thinking on the part of the debtor. Most individuals get their first credit card and plan on making charges during the month and paying off the balance in full every month. Of course, this seldom proves to be the case. The temptation to charge just a bit more against the card balance is always there and doesn't adjust when the borrower's income fluctuates. In fact, when times are tough, credit cards often make the situation even worse because of their design and the function they usually play in their owner's lives.

A payday and auto title loan offers may advantages over credit cards. For starters, they have concrete limits on the amount of money that may be financed. This limit is calculated directly upon the borrower's income. This helps the borrower avoid jumping into financial waters that are decidedly over their head and the pain that often ensues when such things happen. It also allows the borrower more flexibility. While it may take years to repair a credit report, if one gets a much better job they're able to immediately reap the rewards by using a payday or auto title lender: Most of these lenders don't even use credit checks.

Credit cards oftentimes have built into their business and lending model several features which are decidedly punitive. Such measures include excessive late fees, increases in financing and interest charges that come without announcement or even reason and credit limits which may suddenly be reduced at the discretion of the company with little or no way for the customer to appeal such actions. All around, this makes this sort of lending very unpredictable and, when compared to other products, it falls far short in terms of customer service or customer care.

A title auto loan, for instance, has a ceiling which can be explained to the consumer as soon as the loan is taken. Most consumers will be able to borrow up to 50% of the total resale value of their car, either all at once or over time. Because this is calculated based on collateral, it is not subject to the same arbitrary changes that characterize the revolving credit accounts offered by credit card companies and other lenders who operate on basically the same model. The limits are firm and predictable and, thus, advantageous to good financial planning.

Payday loans and credit cards often fulfill the same role: Paying for small cost-of-living items in between paydays. Of course, on a credit card, these payments are easily forgotten and left unaddressed, collecting interest and fees throughout the course of the year. Payday lenders make it much easier to pay off the balance as the loan is advertised as being short-term from the start. In fact, because there aren't any fees for early payoffs, it's often best for the customer to simply pay them back whenever the money comes along. Once it's paid, the account is closed and the consumer is free to move on.