I don’t like credit cards. Many smart people — including my wife — use them wisely and never have problems. I’m not one of those people. Most of my money woes stem from credit card debt acquired when I was first out of college. Eventually I wised up — I have not carried a personal credit card in more than five years.
NCN at No Credit Needed has posted a detailed list of the reasons he does not use credit cards. He writes:
I have not used a credit card in over two years. So far, I have yet to find myself in a situation where I had to use my credit card. (I still have one, active, credit card account. I keep my card tucked away in my wallet. I’m not sure it actually works anymore. I do not plan to find out.) I do not advocate closing credit card accounts. I have an account that is open and in good standing. I just don’t use it. What have I learned about NOT using my credit card?
Among the lessons NCN has learned:
- Spending cash hurts more than swiping a card.
- If you don’t use your card, you don’t get a bill.
- He doesn’t care about missing cash-back bonuses or card rewards.
- He can use a debit card in nearly every place a credit card would work (including car rentals and hotel reservations).
I, too, have suffered no adverse effects from giving up personal credit cards. It helps, of course, that I use a debit card. I also carry a couple of business credit cards, but I have no problem using them responsibly. Business is business, and is completely separate from my personal life.
I’ll admit that I’ve considered trying to use credit cards once more now that I seem to have developed a solid understanding of personal finance. Ultimately, however, I’ve decided the rewards are minimal and the risks too great. For now, I’m credit card-free and proud of it.
[No Credit Needed: I Do Not Use Credit Cards]
This article is about Choices, Credit Cards, Real-Life
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I havent used a credit card or debit card or had a checking account for 5 years. Banks make money on these and the only person I want making money from me is me. Stop using banks would be the best thing to do but unfortunitely I dont get paid in cash
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[...] Dave Ramsey on the Cash Envelope System Suite101.com on the Envelope Budget System Leave Your ATM Card at Home by Liz Pulliam Weston How To Track an Envelope Budgeting System in Quicken I Do Not Use Credit Cards by J.D. on GetRichSlowly.org [...]
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I do not use a credit card except for safety: online purchases and unusual situations. If the service or item is not as described, you can dispute the fee. Credit cards take away your privacy; anyone with a few smarts can access your online or over-telephone information. Credit cards benefit big banks, and take away your freedom too. A CASHLESS SOCIETY IS ONE THAT CAN BE TRACED AND TAXED.
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Eric said: “Banks make money on these and the only person I want making money from me is me.”.
As others have mentioned, ANYONE can make money from a credit card. We get an extra $600+ every year, simply for buying things that we would have bought anyway. But on credit cards.
As others have said, it is a personal issue. Some have self-control, and others do not.
My wife and I recently (as in yesterday) purchased 3 new laptops. We were planning on replacing our outdated PC equipment at home anyway (it’s been almost 8 years since our last PC purchase). Guess what, they had 0% financing for 36 months. And yes, we took advantage of it. We will make sure to pay it off in full in 35 months, and be done. All the while, leaving an emergency fund sitting in the savings account, earning 4%+.
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Very interesting article and one that is widely debated. I currently own a condo here in Chicago and plan to purchase a home in the next few months. My credit sore isn’t as high as it should be but I’ve worked hard to pay down most of my debt into a house payment, car payment, college loan, and credit card. Lenders are now saying my credit score is not high enough and it’s due to my lack of open credit cards with balances on them.
I find this crazy that people are recommending that I open a few more credit cards and have under 40% of the available balance used to raise my credit score. I’m certainly not trying to get in more debt to purchase a new home.
I asked if having a larger down payment would help vs. increasing my credit card debt and several people have said no……!
Huh???
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Hello,
I just found this site and have been surfing around here a bit. It looks fantastic with a lot of great ideas. Hopefully I can contribute back for what I learn from here.
Now about Credit Cards…
They are a tool, nothing more, nothing less. With a tool you can either build, or destroy. Many people don’t seem to realize the great opportunities afforded with them and instead swing them around wildly, wreaking havoc wherever they go. Allow me to elaborate.
My personal experience directs me into keeping 2 CC accounts open with around a 15k limit on each one. Now although current times have reigned in limitless credit, what’s generally been my practice is to play the “transfer” game. Before I became debt free, I would use these valuable tools to aquire very low interest rates, thus allowing more of my payments to be directed towards principal. They very often would send out offers to do a balance transfer with little to no money for the transfer and a very low interest rate. I was able to put $13k of one particular loan that I was paying 10.75% onto a balance transfer to CitiBank for 2.9% for the life of the loan. This was a HUGE savings! The biggest trick is that you can’t use it to CHARGE things on it then, as your payments get diverted to the lower interest, and you’re stuck paying an exhorbant interest on your “purchases” until the entire transfer is paid.
So with a mentallity that a Card is more of an “instant loan” and not a vehicle of impulse purchasing is key. Sometimes they will offer very low rates for 6 or 9 months, in which case you plan and budget to either pay it off, or pay it way down in that time frame, allowing the small remaining principal to default into their higher rate, still a huge savings.
Another avenue that many have mentioned combines online shopping, Gift shopping (Christmas?) and other planned purchases that you ALREADY have the cash for. As long as you have no balance, then using Cards for purchase that you immediately pay off gives you an additional 2-5% discount in the long run. In regard to online shopping, using Cards versus using a debit card, in my opinion, feels much safer from a hacker standpoint. Let’s say scumbag-hacker steals my ID for my CC, at least he doesn’t have access to my bread and butter for paying my monthly utility bills. I can resolve whatever ID issues arise without worry about a lifestyle interruption.
In summary, a CC can be a very useful tool, one just needs a little discipline and some planning so that they don’t destroy their financial house in the process of trying of remodel it.
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Wow Glenn. I could have written your post about 8 years ago. Except our debt was almost 3 times more than yours is.
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Sorry about all the misfortune, I’m glad to see alot of people back to normal and moving on and hopefully none of you will have a relapse… maybe we should start a debt anonymous program. Hi my name’s Bob i’ve been a recovering debtaholics for about 5 years.. one day at a time guys, one day at a time.
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Anonymous,
I do not use Credit. I have cash lying around in the form of Emergency funds. The concept of borrowing is not the right message . Live within your means and learn to save. Cash is king. If i want to buy a car, I will use cash. And I always negotiate the price down, that is for a new car. Although buying a new car does not make much economic sense since they depreciate quickly. Not everyone needs credit. Please speak for yourself.
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I think credit cards can be used to put a nice chunk of change BACK in your wallet. Right now, I have a credit card with a balance of $6500; and I am gladly using it every chance I get. Wanna know why?
I got 0% APR until January of 2010 (got the card September of 2008). So what I do is this. Pay for anything and everything I can with the card (hell, I even tell friends to let me put their purchases on my card and just give me the cash). Then, take that money (cash) that I would have used to buy the item and put it in my savings account (4%APY). This way I earn interest on cash I theoretically don’t have (as I already have it ear-marked to pay off the credit card before I get slammed with interest charges).
So lets do the math. The limit on this card is $8,000 (although I may ask for a higher limit). I know I will have the card maxed out before January of 2010, so I will have a balance of $8,000 on the card. Which means, I have an extra 8,000 in my savings account collecting interest. $8,000 x 4%APY = $320. So I just made myself $320. If the card has some type of reward system or cashback, it would be even better! (maybe next time)
There are potential pitfalls to this if you are easily tempted. You could see that $8000 in your savings account and slowly start convincing yourself that it wouldn’t hurt to use some of that money to buy something small. And before you know it, you have purchased 50 small things and when it comes time to pay off the card, you only have $6,000 to pay off a $8,000 before you start incurring interest charges. But as long as your disciplined, you’ll be good!
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I too have done the same as you Jim. My wife and I have at one point borrowed $45,000 or so on our credit cards that had a very low or zero rate.
Some things I noticed
- we earned money from the interest after putting it in the savings account
- we had to pay the minimum payments. This either came from our pocket, or from the money that we borrowed (typically the latter). The flip side of this is that if we used our own money to pay for the card (i.e. because it was locked up in a CD), then we essentially were paying money out of our own pockets to make money, instead of simply taking what we paid on the CC into a savings account and being done.
- don’t charge on the same card that you do a balance transfer. The reason for this is that your payments are put mostly (if not completely) toward the lowest rate balance FIRST. So if your charge rate is 4% or higher and you’re charging on the card that you did a balance transfer at 0%, your effectively making nothing.
- the way to use the rewards cards is to only charge on them the money that is paid in full every single month (so there is no balance on the card).
- after reading several Dave Ramsey articles (and visiting http://www.livinglikenooneelse.com), we switched to using cash only to purchase groceries. We started with an immediate target of spending $200/month LESS than we spent using the CC, and were quite successful at it for the last 6+ months. This was an 18% reduction in spending on monthly groceries alone!
As you mentioned, being disciplined is the key to any of this working at all!
You’ll notice that in a previous post I mentioned that we got back over $600/yr by doing what you are doing. However, since we’ve cut our grocery budget, we’re not spending an extra $1,200/yr, thereby making it a moot point on using the CC to make our purchases.
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@Myself
Yes, you must be careful when you are doing the balance transfers. In addition to your point about not making purchases on cards which you did a balance transfer, you also need to talk to the company and ask them if they have any transfer fee’s and how those are charged.
For example, most credit cards, if they charge a balance transfer fee (most do), will put treat that transfer as a cash advance. Now this is VERY BAD. Because those transfer fee’s will be charged the highest interest rate (15% or higher) and you wont even be able to pay those off until the balance transfer is paid off first. This is because like the poster above said, the credit card companies will put your monthly payment towards the lowest interest rate first.
So lets say you have a balance transfer of $2000 at 0%, you charged $600 at 8.99%, and your balance transfer fee was $100 at 15.99%. Everytime you make a monthly payment, all that money is going towards the $2000 at 0%, while your $600 and $100 balances are sitting there with interest compounding daily.
So bascially what I am saying is try to find a card that offers no transfer fee (they are out there) or ask the company how the transfer fee is charged. One company I did a balance transfer with just includes the fee along with your balance transfer, so if you transfer $2000, your balance will be $2100 but it will all be charged the same rate.
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personally, ever since I was 16 yrs old, I knew the credit system was a trap. I was forced to get a social security number then. it smacks of tyranny to me. I have never applied for a credit card in my life. I have been waiting for the system to crash, and now Im watching it happen. while others are freaking, I am cheering. Usery is evil. oh btw I haven’t even used a bank account in about 4 years. I am way ahead of ‘the game’. the people who are really prepared for the future: the homeless.
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2% cash reward cards are free money. Not only do you get that cash back, but also you get a free short-term loan until the end of the month on your balance (if you pay in full each month) and you get leverage with your merchant in case they rip you off (they don’t want you to complain to the credit card company, it makes them look bad). I buy almost everything on my credit card and use cash mostly just for coffee.
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“I have to eat, buy gas, pay utilities,etc. All those costs are pretty much fixed and will be paid regardless [whether or not I use cash or a credit card].”
In truth, neither gas, nor utilities, nor especially food, are fixed costs. Eating, in particular, can cost anywhere from $100 per person to $2000 per person or more per month. It is by no means a “fixed” amount that you will spend whichever mode of payment you use. It is my experience that I will spend more using a credit card to eat out all month and to buy groceries than I do when I spend out of a pile of cash in an envelope because with the cash I see the cash disappearing along with the fact that I have to make it last to the end of the month, whereas I might not even notice the climbing credit card balance, and even if I do the numbers on a statement are much more abstract, and make much less of an emotional impact on me(cause less of an impulse to conserve the money) than the sight of a stack of twenties leaving my hands.
Utilities are controllable as well, within a degree. As is gas.
When you are serious about saving as much money as possible and meeting financial goals on a limited income, all of these categories are fair game. And using cash to pay for them is a reasonable and extremely effective tactic. It all depends on what your goals are. If you want to save money, you may very well find a cash envelope system to be the best system of all for controlling your money.
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Neither credit cards or debit cards are evil. What is evil is how people use them.
I have one credit card that I pay off at the end of the month. I have been to the other extreme, but now that I am straightened out, I will never go back.
I’d like to see you reserve a hotel room or rent a car without a credit card. I have been there, too.
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Sandra,
I’ve actually done that. I set up a reservation for a hotel room, and gave them the number off of my debit card to be used as a Visa.
No problem whatsoever.
Yes, some systems are so archaic that you either have to choose the way you want to use it, or it does it automatically unless you tell them to use it as a credit card. But most are not like that (at least as I’ve found in my small travels).
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First let me say that having one card, in case of emergency is understandable. I find it humorous the comments here who are just appalled at the notion of “not using credit cards”. See, now you are seeing that even those who are responsible users of cards are having hard times with the credit card industry. Look at what is going on now as credit cards are raising interest rates, closing accounts, and slashing your credit line because they are trying to get as much money possible due to this economy…and they are doing it to people who are responsible card holders. How many times have we heard stories of people with good credit and paying their card on time, and those who do not carry a lot of credit debt being targeted in this way..and now they found themselves in a mess. These are not just people who were handling their cards irresponsibly, these are now the good and responsible customers who are feeling the pain from the credit card industries. Now that we are expecting legislation for credit card reform, the credit card companies are doing even more of these unsavory activities to get more money. For those who believe that your credit card is safe from theft or i.d. theft, or you feel that you may not have as many problems by just keeping a card….well, thieves are becoming more sophisticated in their tactics, debit cards are stepping up to the plate to offer better protection, and you can use your debit card to rent hotel rooms and cars…I have rented a hotel room easily at the Hyatt. Plus, we as Americans need to admit that we are just addicted to credit cards, they are a crutch for us….even if we do say we pay them off every month. Why keep something that can raise your interest rate at the drop of a hat, regardless of how responsible your are? So, this is all proving that it is better to pay off your debt, find new ways to earn extra income so you may afford larger spend items without using a card, and get off the credit card addiction. Of course, keep one just in case you have an emergency.
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I don’t have credit cards, but I use a debit card for those situations where a pseudo credit card is required. I’ve never had a problem. I also find that in the current economy, my lack of credit card balances owing has certainly been to my benefit, both financially and emotionally. I encourage everyone to ditch their credit cards and live on a cash basis.
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I have credit cards and I love them.
I view credit cards like automobiles. Cars can be driven easily around 200 mph and be dangerous machines. However, most people have learned how to correctly use them.
Credit cards are the same. You can drive yourself into consumer debt or learn how to correctly use them. This is where people get into trouble with credit cards. They step on the gas, forget the brakes, and don’t stay within the limits.
Unfortunately, there are no “credit card” education classes. So, not a lot of people know what can help them or hurt them.
I use them to earn rebates, track expenses, investing purposes, emergencies, and even raise my credit score.
Even if you use credit cards, you need to know things like how your balance affects your credit score, why to raise your limit, and how to move balances (balance transfers are bad).
At the end of the day, credit cards are just tools, like cars. It all depends on you on how you utilize them. They can be productive or destructive. There are advantages to credit cards.
Learn how to use the plastic and you’ll be able to use productive tool to your advantage.
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An interesting question, relevant to this topic is, how would not having credit cards affect one’s credit score?
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It sounds to me like all the people that use credit cards to pay for everything and then pay off the balance are kidding themselves about something. It just doesn’t sound right the way they’re all so gung-ho about it. And it sounds lazy and snobbish.
You don’t need credit to live. That’s a myth. Just save and pay for everything, including houses. I’ve seen lots of people who aren’t wealthy do it.
Every time I’ve held a credit card, it felt hollow, and I could just hear the cc companies laughing at me. It seems like a good way to feel totally detached to the real meaning of money.
Credit is just an excuse to make you feel good about yourself.
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Why would anyone use credits cards for anything other than emergencies or investments with high ROI such as education? I don’t understand the mentality of people who think it’s financially sensible to spend what they don’t have. You’re going to have to pay it back, with interest.
It’s just shooting yourself in the foot. For other things there is such a thing as a debit card.
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