Life Without Credit Cards
Published on - June 17th, 2008 (Modified on - February 8th, 2012) (by J.D. Roth) For some people, best credit card deals are useful tools. For others, they’re a gateway to debt. My first step toward controlling my spending was to cut up my gas cards and move to a cash-only system. It was nearly a decade before I felt I could trust myself with a personal credit card again.
You might believe that credit cards are a necessary part of modern life, but it’s just not true. During my nine years without one, I never noticed the absence. Millions of other people live financially prosperous lives without them. Yesterday, CNNMoney posted a story about life without plastic. Donna Rosato writes:
Times are tough, and like everyone else, you are trying to save more and spend less. The problem is, you’ve tried that before, only to see your spending inevitably drift back up. So here’s a radical proposal: Stop using credit cards.
We’re not kidding. If you really want to make a dent in your spending, close your accounts, freeze your cards in a block of ice, do whatever you need to do to rid your wallet of plastic.
The article outlines the reasons you don’t need a credit card, including research that indicates shoppers who use plastic spend more than those who don’t. If you have a debt problem fueled by credit cards, though, it can be difficult to let them go. I know.
When I cut up my credit cards in 1998, I kept all of the account information. This prevented me from spending money at the comic book store, but I could still buy stuff online. Eventually I destroyed this information, too.
Today, in 2008, I’m able to use credit responsibly. I’ve had a personal credit card again for a year now, but I’ve set out clear rules for its use:
- I do not use it for impulse purchases or for entertainment. (I call this the “no comic books” rule.)
- I always pay the balance in full every month.
- If I think I might be tempted to spend too much, I leave it at home.
- I don’t use the card for online shopping.
These guidelines help me cope with my personal weak spots. Your weak spots might be different. The important thing is to be honest with yourself, and to use credit cards in a way that helps your finances instead of hurting them. If you can’t do this, you’re better off without them.
Rosato’s article also features gallery of ten families who live without credit cards, including my colleagues NCN from No Credit Needed and Leo from Zen Habits. (And GRS reader Matt Hutter!)
[CNNMoney: Life without plastic and They cut out their credit cards, via No Debt Plan]
Addendum: Those wondering why I returned to credit should read this post from a year ago about why I applied for a credit card (and why it’s not the end of the world). Short version: Credit cards offer advantages to careful users. I thought I was ready. I’m willing to kill the thing at the first sign of trouble. So far, so good.
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This article is about Credit Cards, Debt
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How do you buy things online without a credit card? I rarely deal with a website that doesn’t require one.
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How do you do online shopping now without a credit card? Do you have any good methods?
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i used to have around 6-8 different credit cards a few years back when i was first trying to establish my credit (most of which i did not even use).. i thought the more i had the more i could build my credit score up.. i cancelled almost all of them.. except the three i had the longest history with
credit cards are still useful for the following
- car rentals
- online shopping (don’t feel safe using my debit card)
- emergency expences (i.e. car repairs when i don’t have the liquid cash at hand)
i only use one cc now.. the other two are hidden in the house.. i recently just upgraded from a platinum to a world mastercard (points for travel, random stuff, etc..)
what’s convenient about my CC is it is directly linked to my checking account.. so i can make an online payment whenever i need to
i think i could live without a CC as well.. but i think i have enough discipline to keep one
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I use credit cards only as a convenience. I will use my credit card only if (1) the purchase was already planned in advance and (2) I already have the cash set aside for that purchase. The card allows me to avoid carrying a large sum of cash or buy online. Here’s the OCD part: after I use the card, I pay off the balance that same week, and usually within a few days.
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I’ve been in and out of credit card debt more than once and I can say that I see both sides. On one hand, I’ve been able to use credit cards very responsibly for my business, but my personal finances at times are a different story.
For me, the biggest problem is apathy. It is easy to forget or not care if the balance is say $1,000 on a particular card, but when you start to have two or three cards with higher balances, it adds up in a hurry.
Before you know it, you’re minimum payments are in the hundreds of dollars and that large chunk of your monthly budget is spoken for before you have much of a say in it.
My best advice is to get down to one credit card and only one credit card. Don’t worry about rewards points, don’t worry about maximum balance. Just get down to one card with the lowest rate possible. That will keep you as much out of debt as possible if you are unable to go completely credit card free.
Also, if you want to go completely credit-free. Use your debit instead. If you spend too much you’ll overdraft and after that happens once or twice, you’ll learn your lesson.
Brian
Recession Guide
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With all those rules, why even have a credit card? It almost seems like you felt some weird social “need” to have at least one card – even if you never really intend to use it for much. Why bother? I haven’t had a credit card in over a year now. I haven’t once missed having one and I actually enjoy the odd looks I get if the subject happens to come up in conversation.
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I haven’t used credit cards in about 3 years. I use my debit or paypal for online purchases, the only thing I could conceivably need one for is renting a car but I don’t really travel.
I do plan on getting another one once I’ve repaired my credit rating a bit after the original (college age) credit card fiasco. For me, they really aren’t a necessary part of my life and I don’t have the money management skills or reliable income at age 25 to keep any unnecessary debt. I don’t even have a car loan, I drive an ’82 Volvo. I had an ’03 Taurus but the fact that I owed mroe than I could sell it for gave me panic attacks so I got rid of it at the first opportunity.
Anyways, if you are not super fantastic and responsible with money I think getting rid of credit cards is a great idea.
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I have a credit card, but generally only use it for online purchases (and the very occasional offline ones) that don’t take debit.
Other rules I put in place for myself:
1. I never buy anything on credit unless I have the cash in my bank account for the total purchase, and I immediately set aside that cash.
2. I pay my bill in full at the end of each month.
I’ve had a credit card for 3 years, and have never carried a balance on it. For me, a credit card is just a debit card for those few purchases that I can’t use debit. That simple.
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If you’re going to have a card you need to use it prudently.
I’ll be honest, the real reason I use plastic (in Debit or Credit form) is that I hate carrying around cash — mostly because I hate having a fat wallet.
Still, in the interest of self justification, here are 8 reasons *I* keep and use a credit card.
http://richerandbetter.blogspot.com/2008/06/8-reasons-to-keep-your-credit-card.html
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When I first got my credit card … I used it for everything because it got points and what not. Now I owe quite a bit of money, less than $3000 though, which is good. I’m working hard to reduce what I owe, and I don’t use them anymore for anything. A very inspiring article! If they can get out of so much debt then I can too!
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I think it was Trent over at The Simple Dollar that once posted a great analogy on credit cards (I don’t remember his exact quote, so I’ll paraphrase). Credit cards are like power tools. Used wisely, they can be an incredibly effective tool. However, they are dangerous in the hands of someone who doesn’t know how to handle them.
I used to carry several cards, and had the balances to show for it! Today I’m down to one card. I am working off the balances on the remaining cards, and only using this last card for emergencies and travel reservations.
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Re: Shopping online
I use my debit card. To me, there’s a huge difference between using a debit card and a credit card for stuff like this. It works for me!
@Sean
I originally signed up for a credit card for our vacation to England last summer. It carried fewer fees and offered more protection. I use it now for routine expenses like utilities and gasoline and groceries and the like. I get 1% cash back, which feels good!
@Julie
D’oh! You reminded me of one of my rules. I, too, do not use the credit card unless I have the cash in the bank, and then I set aside the money immediately, too.
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JD,
Why did you start using a credit card again? I don’t understand the need. Are you getting points or something?
These days, debit cards have protections matching credit cards (if yours doesn’t, your bank sucks; get a new one), so the “I use it for online shopping safety” argument is bunk. Many also offer cashback or other bonuses.
So why would anyone need a separate credit account? Unless your credit rating is totally wrecked or something…
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I have one credit card that I pay off in full every month. I have never been tempted not to. Glad my parents taught me that habit at a young age.
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Last year I wrote about why I applied for a credit card (and why it’s not the end of the world).
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If you can keep your credit card payed off every month, the cash back credit cards make sense. I use mine for the large majority of my expenses, and the cash back we get is a nice bonus. If you have a tendency to carry a balance though, you’re better off without.
I know that if I ever carried a balance on mine, I would cut it up real quick, and not think about using one again until I got things well under control.
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My question for those who advocate having no credit card: What happens when you want to apply for a mortgage and you have no credit score?
I got a credit card at age 18 (and financed my car at age 30 even though I could have paid cash) mostly in order to develop a good credit score. But the person I may be trying to buy a house with soon has no credit score at all, and I have no idea what effect this will have on our mortgage application.
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This is true.
However, if your card is used fraudulently, the money is gone from your bank account until the bank clears the matter and refunds your money.
With a credit card, the money is charged to your account, but you can just not pay that money to the bank while the issue is being resolved.
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richie = exactly
that’s why i only use a credit card for online purchases
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I have 4 credit cards: two which I currently use and two which I no longer use that have college debt on them and am aggressively paying off (I had 3 two months ago, I canceled it as soon as the debt was paid off and plan to do the same with the current two).
Of the two I use, one is Discover’s 5% cash back on gas card, and the other is a Cap One card which I charge everything (non gas) that I buy. I pay both of these cards in full every month.
I made a habit out of not carrying cash when I was in college. This was somewhat out of necessity: I knew only a handful of people that *didn’t* get mugged; at least a credit card can be canceled. Even now I have a hard time carrying cash.
One point to consider with using debit cards: I don’t know if this is still the case, but it used to be that it was very difficult to dispute charges to a debit card. Be careful using them online. (Richie’s post came in as I was typing mine; I guess this is no longer true)
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I HATE carrying cash, and I refuse to use PayPal for online purchases because I know of several people who have had a nightmare with merchant disputes.
I have two cards: a Visa and a MC. Both are cash back. I only charge things that I would be buying anyway. For example, I pay at the pump when I get gas with my cc. I pay for groceries this way. It’s also very convenient to pay for large purchases with a cc rather than a check (for example, the tradesman who refinished my wood floors, or the plumbing supply store when I gutted my bathroom). This is especially true in Canada because if I put a stop payment on a check, the bank who cashed it can sue *me* rather than the person who cashed it.
But I don’t have any issues with credit card debt because I don’t charge anything unless I could pay cash for it, and I always pay off the balance every two weeks.
Last year, I got $300 in free money.
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After going without credit cards for over 15 years (and using a debit card online and never having a problem either) we got a credit card last year. We use it only when we are buying airline tickets and we can’t use the debit card due to a transaction limit. We pay off the balance anytime we use it to make a purchase. Most of the time though, it just sits on my dresser, gathering dust.
We have also just paid off our mortgage. Yippee!!!!
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JD,
I’m a huge fan of your blog and have been reading it for over a year. Thanks for profiling the CNN/Money article. The columnist, Donna Rosato, found my blog and interviewed me for the article. I’m the one with the family in front of the house at the top of the article. It’s been a lot of fun getting all of this press coverage.
Watched your interview on KGW last night. Very cool. It’s great being able to put a name with a face. Now we can all see where the great ideas for GRS originate.
Matt
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We have a few credit cards and each one gives a reward. One of the best that I have found is the Visa card offered through Pentagon Federal Credit Union which gives a 5% cash back on gasoline (paid at the pump) and 2% cash back on groceries at the grocery store (Walmart included). This cashback bonus is credited automatically to the statement. With the rising food and gas prices this adds up to quite a savings. We are very careful to pay the balance in full and on time each month. As soon as we receive the statement I go online to my checking account and schedule the payment to be received one day before the due date.
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We killed $55,500 in debt in part by cutting up our credit cards. We use Visa debit for day to day expenses. We did both eventually get new credit cards but we only use them for travel or business expenses. Spending present money vs. future money has really helped me get control of my spending.
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@ageekymom
Congratulations!
@Linda
Thanks for the great tip! My credit card doesn’t have any cash back incentives and I do travel from time to time overseas, so it would make sense for me to charge airline, car rental and hotel to a card that does. : )
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I only have one credit card. It has no annual fee, pays me 1% cash back on all purchases, and has a low 7.9% interest rate, which doesn’t matter since I pay it off every month. I deposit most of my paycheck directly into my savings account, pay all bills out of that, and maintain my finances in Quicken so I never over-spend. At the end of every month, I automatically transfer the remaining balance in my low-interest savings account to my HSBC savings account that pays 3.5%.
Using that method allowed me to pay off $18k on a post-divorce HELOC, plus save $6k toward an emergency fund in just under 2 years. I’m ecstatic to say I’m debt-free other than my mortgage!!!
Sheesh…me, me, meeeeeeee
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The best way I’ve found to keep credit card spending in check is to use a financial program like Quicken which tracks all your spending. Therefore, every time you look at it, your credit card debt is in red numbers with a big “-” next to it, which affects your bottom line net worth. Hard to ignore even the smallest of debts when it appears like that.
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If you keep your expenses down (within budget) and pay off your debt at the end of each billing period, it shouldn’t matter if you use a credit card. I travel a fair amount, and in order to get the best deals I have to purchase via internet; a credit card is best for this purpose. In foreign countries, a credit card goes much farther than a debit card does. And it seems that debit cards are riskier to use abroad, when you can in fact find a merchant who will take it. Additionally, I’m generally less fond of using the debit card, as there are fewer protections for me in cases of misuse and fraud. And though some people have the temptation of “cash back” with credit cards, I don’t; the debit card, on the other hand, does provide the option of cash back. Not everyone can resist that option.
Ultimately, on principle, I’d like to do without a credit card, just as I do without tv. But practically, at least for now, I am in no danger of misusing the one I have, and it sure comes in handy in ways that a debit card cannot.
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I read the same article in this month’s Money magazine with interest and thinking about how I would have spent my money differently over the years had I not been using credit cards. I was caught by the the phrase in the article that said stop using credit cards even if you pay off the balance every month.
I’ve been trying to move back to cash for most of my day to day spending to curb impulsive little stuff spending. The fast food and coffee franchises had me in mind when they started accepting debit and credit. I have resorted to taking even my debit card out of my wallet now as I sometimes have the coffee in my hand before I realize that I’ve used the debit card again. (even now, when I have cash in my wallet.)
The convenience of credit and debit cards is its
the best and worst feature.
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I use a credit card mostly out of fear. I think it’s because you keep hearing stories all the time about people that can put card readers over the real reader and it can steal your info and they can then use it to make purchases using that info.
If I were ever to be a victim of that sort of theft, I would rather it be a credit card that was hacked then my debit card that has access to my money. At least a credit card while you dispute the charges you still have money in your account.
Maybe its just my own fear, but thats why I use credit cards. Of course cash would solve all of those problems. That’s it, cash for me.
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I keep a credit card after the following happened to me. We had a car accident 300 miles from home and couldn’t rent a car to get home without one.
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I’ve got to reiterate the caution on using debit cards rather than credit cards.
The difference is that with a debit card the money is immediately taken out of your account until the bank can recognize the fraud and return the amount. Even if you have a great bank who can take care of this within 24-48 hours you run the risk of bouncing your auto-withdrawals.
Compare this with a credit card where it’s never your money on the line until the bill is due.
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What about renting a car or moving truck?
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What kind of credit card do you have, J.D.?
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I have a Capital One something something. It gives me 1% cash back and is good for overseas…
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Great post. I just recently found (and starting reading) your blog and wanted to share my experience with credit cards. I am 26 now and when I was 19 I got my first credit card (I now have several) in order to build my credit. From then on, I have actually paid the balance in full every single month. I, too, like some of the other readers treat my credit cards like debit cards.
Currently, I put all my monthly expenses possible on my one credit card because I get points. My points can be used for just about anything, like cash back, but I use them for free GAS cards! With gas the way it is, every 5000 points I get a $50 gas card. It’s actually easier for me to see it on the credit card since I don’t like to carry cash (I don’t feel safe).
I definitely can see the argument either ways for having/not having credit cards. For me and my monthly income/expenses, it’s easiest to have a “free” loan using the CC and paying it off every month. I actually have my billing cycle set up so it comes due at the beginning of each month. So basically, it is the second bill I pay every month after money into savings. This also helps me not go over budget on things because I know I only have a certain amount of money left in the bank for the rest of the month. It works well for me, but may not for others.
Thanks for the great blog. Keep it going.
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We’ve been credit card free for close to 4 years now, and we make online purchases all the time. We rent cars, book hotels, buy stuff on newegg and amazon.
Others sort of addressed it, but this is possible because we use a Visa Debit Card that is tied into our checking account. If we don’t have the money in the checking account, we don’t make a purchase. It’s pretty simple.
I haven’t paid a credit card interest payment or late fee or just-because fee in 4 years.
The fact that we need to plan our purchases, and that the debit card draws directly from checking means we watch what we spend and we don’t impulse. As a result, we have *money*.
I guess that is weird, whereas most people live paycheck to paycheck.
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I am a little confused why some people are keeping credit cards to rent cars and trucks. I’ve used my debit card to do both. Maybe thes rental companies only take certain types of cards… not sure.
@Kelly – if you’re that concerned about having your identity stolen, it might be better to have neither a credit nor a debit card. Although I did once have a person steal my debit card information and make an online purchase with it, my bank replaced all but $50 of the funds as soon as I called them, and the last $50 within a few days. This was years ago, when debit card protections were not what they are now. So I don’t worry about it. Besides, I think a lot of the fear we have about identity theft is drummed up by the media to sell advertising (including advertising from credit card companies).
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I’ve been using the Chase Freedom card and getting 3% cash back at gas stations and grocery stores.
I read an article today, though, about how independent mom-and-pop gas stations are closing their doors because they can’t afford to buy gasoline. One of the main reasons? Credit card fees of 5-10 cent per gallon of gas. My 3% cah back at gas stations is still earning the cc companies 2 to 7 cent per gallon and putting small-time gas stations out of business.
I definitely think it’s time to go to all cash for financial AND ethical reasons.
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Hi Folks,
Drug dealers often give away the first hit, there are reasons credit card companies give incentives. Has anyone ever taken out a credit card with the intention of running themselves up to their butt in debt? Life will happen and someday you won’t be able to pay the credit card bill in full or pay off the same as cash deal as planned. Best way to get out of debt is to stay out of debt.
Myths
Car rental most (not all) of the companies take visa debit. You can check web sites to find out their policies, if yours does not call one of the others. Some will debit your account upfront rather than at the end of the rental (the same with some hotels)
Mortgages good work history and payment record (i.e. rent, utilities, not just debt) qualifies you for a mortgage, if your bank won’t use manual underwriting switch to one that will.
Liability limits are the same on my visa debit as it would be for visa charge card.
Daily spending limits on a debit card can be increased just by requesting it.
My wife and I have have lived quite happily with out credit cards in our lives for over ten years and to be honest haven’t noticed any inconveniences, and no, we’re not hermits we travel, shop online and everything else we just have never encountered problems of any type.
From helping friends and family work their way out of debt I would rather deal with drug dealers than credit card companies.
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I just got my FIRST credit card. I am scared as anything to use it – I used it for the first time the other night to donate $50 to charity, and I am paid it off already. The only reason I have a credit card is to increase my FICO score/credit history. Thanks to my parents for the fantastic advice about credit cards – and now I am seeing it all over PF blogs, too!
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If you have fixed monthly expenses paid automatically out of your checking account, it makes sense to have the bills put automatically on a credit card and then the credit card paid automatically from your checking account each month. By routing the payment through the credit card, you can take advantage of the rewards. If you have a heavy load of reoccuring bills (i.e. phone, cable, internet, car insurace, life insurance) the total rewards can be significant. However, since you are not always taking the card out of your wallet to pay, you don’t become desensitized to using the card. It doesn’t seem to have any of the psychological risks of credit card use (spending more than you would with cash, building bad habits) but it has the financial advantages.
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You don’t need to have a credit card to have credit history for a mortgage. My husband and I bought a home last summer with only the credit history of our utilities and landlord. It can be done. No credit cards for us.
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Credit cards are great and while many can’t control their spending habits or make poor choices regarding the use of credit cards, there are definitely positive points to look at.
For example, if you’re going to spend cash anyway, why not spend the equivalent amount and pay no interest (almost all credit cards don’t charge you a finance charge as long as you pay in full each month) and earn cash back some of those cards give. Not only are you not digging a hole for yourself but you’re making money at the same time.
That is just one of many examples a credit card can be beneficial aside from building credit history. It isn’t the gun who kills people, it’s people who make poor choices that causes them to end up hurting themselves or others.
All that said and done, I do understand where you are coming from and you do make valid points in your argument. One of the reasons I prefer using a credit card though (again, another benefit) is charge back. If you have issues with a merchant or they’ve done you wrong in a way or another, at least you have the charge back option. This is unavailable to many debit cards and certainly a lost cause in many ways with cash. There are positives to both sides of the story but in my opinion, as long as the user has self control, having credit cards far outweigh not having them at all.
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There was a recent ‘financial industry’ survey here in Ireland that reveled 61% of the population don’t have a credit card!
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Debit cards do not offer the same buying protection as credit cards.
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On the rental car/hotel reservation issue, for the year I did not have a credit card I used my Visa debit card for both and had no trouble doing so. I was often warned that the company would require a hold or a deposit but that never occurred.
I eventually got a new credit card because I was charging business expenses and preferred to have those expenses sit on a credit card rather than come out of my checking account while I was waiting for reimbursement.
We also now use our credit card for personal travel expenses.
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I love using my credit card (responsible). I only have one rule when it comes to it: Pay the whole balance at the end of the statement.
This has kept me out of trouble. I have one with a low limit which I use for online shopping only and another one with a higher limit which I use for the day to day stuff.
Everyone should limit themself to one or two cards, unfortunately it is way to easy to get multiple cards each with a high spending limit. This makes it very easy for it to get out of control.
There should be a law enforcing stricter limits for customers, otherwise the banks should be liable if someone gets into too much debt.
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Going back to the “personal finance is like personal fitness” analogies: I can’t keep chocolate in the house. That doesn’t make chocolate bad, and that other people can’t eat chocolate in moderation, but I can’t, so I don’t bring it home and have it around. I don’t claim to be compulsion-free!
However, I can and do use credit cards responsibly. Would I spend less if I had to use cash or debit for everything? Probably, but the overage isn’t worth the inconvenience to us right now. DH and I are very careful shoppers, and all CC spending is tracked in Quicken as soon as it’s charged, so we know where we are before the bill comes.
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