As the cost of living slowly increases, more and more individuals are becoming dependent on small loans that they use to pay for anything from rent to groceries. Currently, the most popular way to quickly borrow moderate amounts of money is to use a credit card. These offer several advantages, including the fact that the borrower does not have to wait in line or fill out paperwork to borrow money. Furthermore, most stores allow their clients to pay for products and services using these and some even offer rewards.

Unfortunately, credit cards are also extremely dangerous, especially for those who have the habit of overspending. Unlike debit cards which can only be used until the money in the owner’s account is used up, at no additional cost to the owner, credit cards come with high-interest rates. Depending on the lender, the credit card interest rate can be so high that the cost of the debt alone would be difficult to pay in due time.

Why Are Credit Cards Dangerous?

Credit cards are not dangerous by themselves. They can be great tools for those who have to pay for emergency expenses such as medical procedures or house repairs. However, the ease with which individuals can use them makes credit cards financially addictive. Lenders usually place relatively high limits on the cards and even higher interest rates.

While it might be no problem for individuals who use them sparingly or can repay the debt by the end of the month, others can quickly lose control of the situation. There is an increasing number of individuals who use credit cards on a weekly or even daily basis, only to end up unable to repay the borrowed money on time. It often happens that they cannot repay the debt and continue to use the card until they reach its limit. Not repaying the debt on time will damage an individual’s credit rating, which will also be affected by his credit utilisation ratio.

The Advantages of Online Lending Platforms

This having been said, online lending platforms are great alternatives for those who find themselves requiring several short-term loans to get through the month. While they do come with the same high-interest rates as credit cards, most online microloans are not reported to credit registers. This means that the debt will not affect one’s credit score.

Online microloans can be applied for using the websites of the lenders, P2P platforms, or mobile apps, each with different pros and cons:

  • P2P Platforms – P2P platforms are suited for individuals who need larger amounts of money (up to £3000-£4000). They have relatively low-interest rates when compared to other online lending services, but it can take up to one week for the money to reach the borrower;
  • Lending Websites – Lending websites function similarly to banks. They offer various type of loans, along with microcredits that are received in under 24 hours;
  • Mobile Apps – These allow users to borrow even a few pounds at a time. The fact that they are installed on smartphones makes them easy to set up notifications for when you need to repay the money. Devices with NFC readers can even be used as credit cards. Hover them above a POS as you would a regular card, and the transaction takes place;

When Is It Best to Make the Transition?

Cancelling your credit cards is usually best done as soon as you manage to pay all of them off. If you have a clean slate, financially, you will be able to make the transition without any side effects. However, it is best to keep one credit card and use it every couple of months, for small purchases. This will allow you to continue building up your credit history and increase your credit score for future loans.

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