How to Live without Credit Cards

In the current economy, with salary freezes and cuts and, worse so many people entirely without a job, it is necessary to rethink finances. In the boom times, many people were using credit cards as though there was no tomorrow, without thought that money borrowed on a credit card is the same as any borrowed money, it eventually must be paid back. Just as nations are repaying debt incurred during better times so too must ordinary people. One easy way to do this, and to avoid incurring more debt, is to live without credit cards.

Some people argue that this is impossible in the modern world but doing without credit cards is not difficult, if you think creatively about those isolated occasions when not having a credit card might cause a problem. In some situations, such as with particular budget airlines, using a credit card costs more than using a debit card. Credit cards lull people into a false sense of security, because paying for a purchase by credit card does not feel like spending money, in the same way that handing over bank notes or writing a cheque does.

In the United Kingdom, in 2003 before the current economic crash, KPMG, a respected accountancy company asked 2000 adults about debt and credit cards. One thousand people had up to ten thousand pounds of debt, 160 people had debts between ten and forty thousand pounds. Three hundred and fifty people, in the survey sample, were having sleepless nights worrying about escalating debt getting out of control. This was in good economic times before the worst economic crisis in history.

In these, more straightened, times, even Americans are kicking their plastic habit. According to the American research group, credit card ownership dropped from 71% in 2008 to 67% in 2010. Credit card ownership, in many countries, is likely to drop dramatically, as the recession hits people even harder in the coming months and years.  

Using credit cards is a relatively new phenomenon, before the mid 1970’s most ordinary British people did not have, and could not obtain, credit cards. You might ask how they ever managed, but they did. Here is how you can live without credit cards.

When you do not have credit cards, you can only spend the money that is in your bank account. You might also find that you actually save money because you have no alternative but to live within your means. You also save money, because you do not pay interest, when you spend your own money. Whereas when you purchase something on a credit card, thanks to the mathematical mystery that is compound interest, not only does the interest add to the loan but also unless you are careful you pay interest charges on the interest charged on your loan.

Many people use their credit card as an emergency fund for unexpected expenses. When you decide, that you are going to live without credit cards, you have to replace that safety net, of other people’s money, with a safety net made up of your own money. Have an emergency fund and add to it each month. Spend less than you earn and put whatever remains at the end of the week, or month, into your emergency fund. Set a budget for necessities and stick to it. If you can earn a little more money, by doing a couple of hours overtime, getting a part time job, or selling unwanted possessions, do so and put the money in your emergency fund. Once you have a sufficient emergency fund save towards other things, holidays, college funds, a car or whatever you want.

Many people say that you need a credit card to shop on line, this is not so. Most times, you can use a MasterCard or Visa debit card or you can use PayPal. When you spend this way, you have to have the money in your account before you spend.

Many people believe that you cannot travel without a credit card. You may have to ring around to find the right hotels or car rental firms, but if you look many will take cash deposit. Do telephone the hotel, or car rental company, and check that you can pay by debit card before turning up there.

A solution to these problems could be prepaid credit cards, such as Visa and MasterCard. With these the holder pre-pays an amount of money onto the card, just like topping up a mobile telephone card, and can only spend up to that amount. There are several other pre-payment cards in various countries. These work for purchases exactly like a normal credit card and to retailers and others, who only accept credit cards, they are for all purposes, a credit card. Only you and the card provider will know that you are actually spending your own money, rather than someone else’s money. They do carry charges for their convenience but they are very useful for traveling or for those odd occasions where only a credit card will do. .

There is no doubt that credit cards may help maintain a high credit rating score. Obtaining a home loan or renting a home may take a little longer, if you do not have credit cards. However, it is not impossible. If you are trying to rent a property, there are ways around it. Most property owners just want to know that you have gainful employment and are a respectable reasonable person who will pay the rent, look after their property, and not disturb the neighbours. Providing you can prove those facts to the owner’s satisfaction, there should not be a problem. Getting a home loan might be a little more difficult but there are solutions, including having someone sign as guarantor that you will repay the loan. 

It is possible to live without credit cards. Those who have stakes in people spending beyond their means, and the credit card companies circulate the myth that you cannot live without credit cards. You may have to think creatively and save for your own emergency fund. However, it is very liberating to cut up those plastic demons, pay off any money that you owe, and not be in thrall to anyone.