Life Without Credit Cards?

Love ‘em or hate ‘em, it’s hard to imagine life without credit cards. Used responsibly, credit cards can help us build strong financial foundations and give us easier access to homes, transportation, job opportunities, and more. But used irresponsibly, credit cards can do damage that can take years – even decades – to reverse.

For most people, the benefits of credit cards outweigh the potential drawbacks, and most of us have at least one or two credit cards in our wallets. That said, I do know that there are some folks out there who have sworn off credit cards, preferring to stick to cash and debit cards instead.

So, what’s better? That’s something you’ll have to decide for yourself. But before you make the decision, it’s important that you weigh the pros and cons of eschewing plastic in favor of a cash (or debit card) only lifestyle.

Pros:

• No credit card debt. This one is obvious. If you don’t use a credit card, you can’t get into credit card debt. If you’ve ever struggled with high-interest credit card debt, you know how difficult it can be (and how long it can take) to pay it off for good. Folks who fear getting in over their heads debt-wise may be wary of using credit cards.
• You’re a little less likely to overspend. It’s all too easy to treat credit cards like free money or an alternative source of income – and it’s been proven that people tend to spend more when they use credit cards versus cash. This is probably because cash seems a little more “real”: If you overspend on your credit card, your balance goes up, but there’s no immediate consequence (it goes without saying that there are plenty of long-term consequences!). If you empty your bank account, you won’t have money left over to pay your rent or mortgage, buy groceries, and keep up with your utility bills. This is probably why folks who stick to cash and debit cards tend to be a bit more careful about how they spend their money.
• You don’t have to worry about interest. If you read this blog regularly, you know how I feel about credit cards: They are great, useful tools, if – and only if — you pay them off in full every month. Interest begins to pile up as soon as you start carrying a balance from month to month, and if you’re not careful, you’re looking at hundreds of dollars tacked on to your balance.
• You don’t have to worry about fees. Credit cards can get expensive. In addition to paying interest when you carry a balance, you may end up paying an annual fee simply for having a credit card (the fee you pay will depend on several factors, such as which credit card provider you choose and whether you have a card that offers rewards like air miles or cash back). And of course, if you exceed your balance, pay late, or miss a payment altogether, you’ll pay even more fees.

Cons:

• One less tool to build your credit history or credit score. I want to emphasize that it is entirely possible to build credit history (and a credit score) without a credit card. If you have a mortgage or a car loan, for example, you will be building up a credit history and a credit score. That said, credit cards do provide another way to establish credit use – as long as you are using them responsibly, paying off your balance on time, not maxing them out, and so on.
• No fraud protection or disputes. Credit cards offer extensive protection against fraudulent charges: Your credit card company may decline or flag purchases that seem unusually large or out of character for you, and if a fraudulent charge does go through, you can get it taken off with minimal hassle (and little to no financial loss). Disputes with merchants are also much easier when you’ve got your credit card company on your side. Debit cards, on the other hand, offer little to no protection – if someone accesses your account and/or uses your card for fraudulent purchases, it’s essentially like they stole cash out of your wallet.
• Travel might be tricky. Renting a car, booking a hotel, and buying airline tickets can be near-impossible if you don’t have a credit card. And using a debit card can complicate your finances even more, since, in many cases, hotels, car rental companies, and airlines will put a “hold” on your account – it’s basically their way of ensuring that you’ll have the cash to pay up. This means that you may lose access to a few hundred dollars for several days (or even weeks).
• No emergency safety net. Before I go on, let me make this clear: I DO NOT condone using credit cards as a stand-in for an emergency fund. That said, I understand that, in some cases – such as an unexpected medical emergency; a home or car repair that simply can’t be postponed until you get the cash together; or something along those lines – a credit card may be your only option. 

Should you say “no” to credit cards? Ultimately, it’s your decision – and it’s a decision you should only make after weighing the pros and cons, and thinking about your own circumstances, goals, and your history with credit cards. While I’m a big believer in the benefits of responsible credit card use, I also know that there’s no single right answer for everyone. Choose wisely and do what’s best for you.

Want to learn more about responsible credit use? Need help managing your current credit card debt? You can always count on the Debt Guru team for advice about money, budgeting, and credit cards. Contact us today for a free credit card debt consultation.