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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In Canada if I want to rent a vehicle I book it with my credit card. There is no option to do that with a debit card. I can pay with my debit card, but to reserve it I need a credit card. I can’t use my debit card for anything aside from in person purchases.
So that’s why I asked.
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I have several friends who have no credit cards, they think it’s great, until they go and apply for a car loan or mortgage. Personally, I had some trouble in my late teens and early twenties with them, but got them paid of some time ago and use my AMEX Blue card for gas only (1% cash-back), online purchases only and when buying high-ticket items for the added, extended warranty coverage.
I have been stranded with a broke down car 3 hours from home and needed to get a hotel for the night, food and other things, in situations like that, a credit card is essential.
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I always pay my CC off in full each month, so I was part of the “my cc use doesn’t hurt me” camp until just a few days ago. Our fridge has been broken (it’s been a week and the landlord still doesn’t have a new one in yet), so I’ve been having to get creative with food. Before work the other day, I realized I didn’t have any lunch, so I swung by the grocery store to pick some up. I was in a hurry to get to work, and it was only when walking into work that I wondered “how much did I spend?”
According to the receipt, I only spent $6.50 (apple, yogurt, pringles can for home, and a lean cuisine sandwich). But the scary part was that I didn’t remember at all what I had spent. When I pay with cash, I always remember, and I do think much harder about where my money is going.
I’m not sure that I’m ready to give up my CC, especially since I’ve never had problems with it, but I am certainly going to consider not using it as much or trying to find a way to be more cognizant of what I am spending on my CC.
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just a quick word of warning to readers who think a credit card is safer when it comes to fraudulent usage.
this past christmas someone used, supposedly, a duplicate of my card and ran up $1200 worth of charges at gas stations, walmarts, etc.
well, the credit card company (citibank visa) assured me all was fine and i would not have to pay anything and it would be taken care of, yada yada.
well, maybe that would be the case if i didn’t have automatic bill payment. but, the next thing i know my bank account is zapped for the $1200 bill.
i called several times and “debated” with the customer service reps (when i could understand them, that is). i felt i should not have to pay the $1200 in fraudulent charges from my bank account, that they should put the money back into my bank account and get on with investigating the case. no dice.
even after reaching service managers, fraud investigators, etc. citibank did not put the money back into my account. what they did do is offer to give me $1200 in credit. so, no, the $1200 didn’t vanish, but at the same time i don’t think it was right for them to zap my bank account with no warning, give me the run-around on the phone for several days, and ultimately hold my money hostage in a credit account. what if i needed $1200 cash? can’t get it, citibank won’t let me.
needless to say i don’t use the card anymore.
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Banks work differently in Canada than in the US, where our debit cards do not work in the same way that our credit cards do. As such, I use my CAD and USD credit cards to make online purchases.
I hate carrying around cash with me because it usually ends up as a kilogram of change in my pockets from all the loonies and toonies. I find that I don’t have a problem with over-spending when I use plastic, and I am diligent about checking my balances online and paying them off at least twice a month. I don’t bother waiting for my statements to come in the mail.
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Thanks for the link love…!
I loved the 2nd page of the slideshow… the guy had a problem trying to buy a $5,700 PC online.
$5,700?!! Red flag…
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I think the real distinction isn’t have/not have a credit card but use/not use! I have two store credit cards — one chain here doesn’t charge any interest, but does divide up your bill so that you always pay a minimum of $25.00 or 1/? maybe 6th? of the bill each month… We have a joint card is for “house” expenses, the things that we don’t/can’t pay for with a check from the joint account or with cash and I have two cards myself.
BUT most of the time they aren’t in use. I find it pretty easy not write a check or use cash — in both cases there’s a direct, real, connection, one really does “feel” that cash has been spent. I use double line real-time check balancing in my check book, so I always do know what each check is doing to my account. However, I do use my credit card at the pharmacist for two reasons, one that it’s an easy record of medical expenses and since it’s a CVS pharmacy I’m getting double “rewards” pay back, from CVS and the credit card company.
I hate those tv commercials (visa? mastercard?) showing everyone having a good time at some store or another until someone tries to write a check — they are trying to guilt people into using credit cards it’s disgusting!
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Correct me if I’m wrong… but it seems the rule here is just to substitute cash and debit for credit, overcoming some perverse mental block against sensibility while using plastic. Do what you gotta do, but let’s not call this a miracle drug; it’s just calling spending by another name.
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I’ve never been a big believer of using credit cards for everything. I have 2 at the moment, but they are mainly used for things like paying for vacations and I usually can pay it off in a maximum of two payments. Other than that, whenever I do not have cash on hand, I use my bank’s check card. This way I never spend what I don’t have. This method has been keeping my credit score really high!
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@L.K., MikePanic: I agree with Robin that you don’t need a credit card to develop a credit history. I bought a house 2 years ago never having a credit card and found out my score was over 800. So CC’s definitely aren’t needed to have a good score.
I did recently open a card becuase I had developed good financial habits and knew I wouldn’t overspend. I am getting ~$30 back per month just for using it for things I would anyway.
If you want some rewards but don’t trust your spending, maybe get one and only use it to set up online bill pay for your utilities and then hide it/cut it up for every day use.
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I agree about trying to get rid of them , I am trying, I have more than 10!!!!! But how do you go about canceling them and not hurting your credit score?
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I think someone who made the analogy about chocolate, to me I think of alcohol, and credit cards. There are some people who can use credit cards responsibily and appreciate their convenience and benefits, and there are some people who have a problem with them, because it is like free money and they have dissociated the act of purchasing from the actual and should be painful parting of money. Seems like I have heard of a number of people who had problems with credit, cut up their credit cards and went cold turkey, who then learned good financial habits. At that point those people could again use a credit card but it wouldn’t hurt them. But for those who have a problem of charging up their credit card(s) and not being able to pay the balance, it does seem to be good advice just to get rid of them and relearn the association of purchasing (fun!) with parting of cold hard earn cash (not so fun!). Just like budgets and reviewing purchases, etc, paying by cash (or at least debit) makes one more fully conscious of each dollar you spend, which is the first step to changing behavior.
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LK@17- I had a credit rating of zero when I went to apply for my mortgage. The bank required me to “build” a credit rating. I simply got credit reference sheets from utilities, landlord, insurance, and ISP (I had to have three plus landlord) and submitted those to my bank.
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Thanks for the link about the ten families that no longer use CCs. Really inspiring reading!
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@61 (Lots of Cards)
There will be a ding when you close a credit card account, no matter what. But it won’t be a long term one. Having so many cards is probably hurting your score more than closing the extras will.
If you insist on keeping one or two, pick the (non-store) cards that have been open the longest. A long account history is good for your score, so keep those.
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cc@63 — Thanks for the info about alternatives to a FICO credit score for documenting creditworthiness. I called my credit union and they confirmed that they work this way too, so there’s at least one place we could probably get a mortgage. (Hope they have good rates…)
LC@60 — Thanks for the response, but my situation is somewhat different, since you had a credit score even though you had no credit card. I was talking about a person whose name isn’t even found when you try to run a credit check. But (see above) I do have some leads on how to work with this now.
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how do you live in a modern society without credit card?
i pay off my balance every year.
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I have never understood the “you buy more with a credit card” argument. The problem isn’t the credit card, it’s shopping without a plan. I go to the store, I buy what’s on my list, and I go home. End of story.
If you’re limiting your impulsive spending by only carrying a certain amount of cash, you’re only caging the beast–not killing it.
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This year, on New Year’s Day, I literally froze my credit cards in my freezer in a block of ice. I don’t have the credit card numbers memorized, and if I want to use it, it’s going to take at least an hour to unfreeze, so I have a chance to think about if the purchase is really worth it. Although I still have balances on the cards I am working hard to pay off, nothing new goes on it unless it is an emergency, and I have to thaw it out. Last Tuesday, when my payday was Wednesday, and my cat needed emergency surgery. To me, that was worth it
The check is in the mail to pay off the charge already.
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Some people make credit cards out to be these evil things… but like anything else they are a tool… I actually have 5 credit cards sitting in my wallet right now… but I have the discipline to have the 5 cards and not have to worry about running to much debit… and they make me lots of money… I also have an orange savings account dedicated to the credit cards…
card 1 – a hess card (5% off all my gas that’s 20c a gallon or about $2.50 everytime I fill up)
card 2 – Capital One Cash Rewards – (1.25% rebate on all my other purchases)
card 3 – Discover card(nothing special low limit used mostly online or with untrusted sources)
card 4 – Amex Blue cash (I don’t think I have ever used this card but having an Amex can be useful)
as you can see my 4 cards cover all the major credit places so if someone has 10% off for using a MC then I whip out the MC to pay for the purchase… but when I get home I run a transfer from my ING checking to ING credit card savings to pay off when the bill comes in…
By learning how to use these credit cards to my advantage and not theirs I figure I have saved $1000 or more…
So don’t always think of credit card as evil and should never be used.
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Points.
Credit history. We won’t even go into why this should not be a priority but you can have a credit card account open, but then cut up the card and never use it. Credit history problem solved.
PS. Credit history is alot more than credit card transactions. many types of debt, both installment and relvoving go into the score, so using a credit card for a better credit score is both largely a myth and foolish.
The other problem, with my the biggest problem,with credit cards is froman accounting standpoint.
My main goal each month is to have as few liabilities “bill” as possible.
Evenifyou pay the billoff at the end of the month,it is still a bill, and I hate bills. Throughout the month, that CC bill is a liability. I hate liabilities.
Even when you do pay the bill off each month you are never getting more ahead than if you were to have used cash (cash or debit).
Mypoint is I spend cash or debit on the 5th of the month for somethingand that debt/transaction is over with. Using a CC I have to revisit the transaction again when it comes time to pay the bill. Using the CC wasted time.
Toomanypeople forget to account for risk. Using a CC increases risk even if you “plan” on paying off the balance each month. Rates can be increased universal default, you can forget, your checking account that you are tryingtoprotect by sing CC can get stolen from…wouldn’t that be ironic if it hadn’t actuall happend before.
It is their game and they are winning by allowing you to think you have some control. Trust me, you don’t. At somepoint in time you will get burned and waste either money or time by using CC.
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I don’t think credit cards are evil. I have 2 cards and use both of them for rewards. One for free flights and one for cash back. You just have to have the discipline to pay them off each month.
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I have two reward cards, one for business travel, and one for personal use. Our rule is to only put recurring monthly bills on the personal card (cell phone, utilities, internet, etc.), and other one-time high ticket items (computer purchase). This gets us reward miles to go visit family at christmas.
The way we keep from getting a balance is to treat each monthly bill as a utility bill. The amount on the card is the amount owed, period. I would never short-pay my cable or utilities.
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I’ve used credit cards for over 20 years, always paid them off in full, never had to pay any interest. Some people overspend with cards and like recovering alcoholics, they probably shouldn’t use cards. But not everyone is an alcoholic.
I don’t even understand “people spend more with cards” mentality. Do you talk more on the phone because you don’t pay immediately? Do you keep your house thermostat at 80 degrees in winter or 68 degrees in summer because you only get the bill at the end of the month? Credit card bill is just another bill. Credit cards give you a short term interest free loan, but you still have to pay it back. The only choice is – pay the amount of purchase or a lot more. But the choice is yours. If one understands that, why would one not make purchases based on need/cost/value considerations?
@troy: “Using a CC I have to revisit the transaction again when it comes time to pay the bill.”
How long does it take to sign the check for the full amount and to quickly look over your purchases? There is also automatic payment when they take the full amount of your bill without your having to even write a check.
“Using a CC increases risk even if you “plan” on paying off the balance each month.”
You shouldn’t spend more than you have with or without cards. If you do, you’ll never have problems with paying your bill in full. I also don’t understand why plan is in quotes. If some people don’t follow up on what they plan doesn’t mean everyone is like it.
“Rates can be increased universal default,”
If you pay your balance in full why would you need to care about rates? It could be 99.99% for all I care – I am not paying it.
“you can forget, your checking account that you are trying toprotect by sing CC can get stolen from…wouldn’t that be ironic if it hadn’t actuall happend before.”
I cannot parse this sentence. If your CC is stolen you are responsible only for the first $50. Many cards even waive that and cover everything.
“It is their game and they are winning by allowing you to think you have some control. ”
You have control over how much you spend with or without cards. If you exercise control over your spending, they don’t control you.
“Trust me, you don’t. At somepoint in time you will get burned and waste either money or time by using CC.”"
Let’s see. I came to this country with nothing, I have now 7-digit net worth. I’ve also used credit cards for over 20 years, have never paid a penny in interest. Pray tell me what makes you think you know something I don’t.
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Kitty:
It doesn’t matter how long it takes, I still have to “revisit” and that wastes my time, regardless how how much time that is.
Plan is in quotes because plans change. I know of no one who intentionally got into credit card debt. Everyone plans to pay it off quickly, but many times those plans change. Life happens.
They (CC issuers) control the myriad of terms of the card, and the timeframe allowed for those terms to change. If universal default can change the terms of your credit card contract with the issuing lender,it can change ANY of them, sometimes including grace period. OOPS!
I applaud your success, however it is likely not due to your use of CC’s. Most people do not become successful because they have superior debt juggling skills, and most people do not borrow their way to wealth.
However, if you came to have a 7 digit net worth “because” you used credit cards, please share. There are millions of people you could help. If however you came to have a 7 digit net worth “despite” using credit cards, join the club.
Finally, the checking account statement goes along with my final point. Why use a credit card at all.
I understand the use of credit cards before the widespead use of debit cards years ago, but now that debit cards exist, and the legal protections esentially mirror credit cards when that debit card is issued by visa or mastercard, which most banks use, why continue using a credit card.
CC are essentially only used by most people for credit or convienence. Debit cards match the convience for those who have the money they are spending, so the only logical reason is credit.
Some say the rewards or points make the difference. Fine for them. I find the risks associated with CC outweigh the rewards.
Risks of innacurate reportable information, identity theft, customer mismanagement, fraud, detachment theory, and mismanagement of your accout by the issuer (sorry we never rec’d that payment) as well as the actual time involved if any of the above were to happen. Plus having to jack around with another bill each month.
What if you pay your CC debt through “automatic draft” but when they go to draft your checking account, the money is not there because it was stolen. I have personally seen it happen. No money in the checking account used to pay bills. Cleaned out through fradulent ACH. Thousands of dollars. Things happen,even if you “control your spending and pay your bill each month” That is why “plan” is in quotes.
I didn’t say I know something you don’t in my original post, I said you don’t have control because you don’t. You just think you do.
You don’t send them a booklet with your rules,terms and conditions… they send you a booklet with theirs. It is their game. They can cut you off at any time. It is their rules. They mail them to you
If using a credit card has so many benefits (interest free loan, convienence, liability protection), why just stop at one cycle. Why not transfer the balance from card to card month after month in perpetuity and never pay the bill?
PS. I haven’t paid a penny in CC interest in 20 years either. I also haven’t spent any “TIME” dealing with credit cards, reviewing monthly statements, fixing any errors, etc. What is that time worth?
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i agree that having access to credit cards can lead to excess spending, and that a simple solution would be to just stop using one (or better yet, to eliminate credit cards altogether!).
incidentally, i recently wrote about another alternative idea, of cancelling all of your own credit cards, and asking someone you trust and don’t want to disappoint to add you as an authorized user to their account:
http://www.financialwellnessproject.org/2008/09/07/living-sort-of-credit-card-free/
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my name is opaleye omotayo joseph from nigeria i hope credit card is not yet used in nigeria we only make use of debit card so if i could get one i will be very gratefull i love you all
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I received a “surprise” last year when I tried to use my AmEx credit card. I had not been charging often because I was working to pay it off ($2,000). I always paid more than min. due and refrained from charging. My request to charge was denied. In checking I was informed they had closed my acct.- without telling me. Reason? I wasn’t charging!! The rep told me everything was fine as far as my payments but I wasn’t using the acct. often enough. I also read in an article the CC companies call all you wonderful folks who pay your entire balance each month(get this)DEADBEATS! Their idea of the perfect customer is ‘minimum payment due Debbie’ Ain’t it great? So to all you ‘deadbeats’ out there: My hearty congratulations. You are taking advantage of a system that too often takes advantage of the consumer. I am trying my best to join your ranks.
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