The Value of Not Using Credit Cards

Credit-card-hook_29-Dec-2014The latest 2014 statistics published on NerdWallet.com show that among American households that carry credit card debt, the average amount they owe is $15,611. In fact, behind home mortgages and student loans, credit card debt is the third highest contributor to overall indebtedness in this country.

So, why don’t more people just ditch the cards altogether?

There are many reasons, but ultimately the “buy now, pay later” philosophy of easy unsecured debt is alluring, addicting, and available. Even after the Great Recession, getting a credit card is surprisingly easy, even for people with questionable histories. However, many people, including majority of millennials (63%), are embracing the benefits of the credit card-free lifestyle and finding that there is an incredible value in ditching the plastic.

The Benefits of a Credit Card-Free Life

While the initial move to eliminate credit cards from your life is really scary, especially for those who have always relied on them as a crutch, majority of people who make this move find it incredibly liberating. There are many benefits to living without credit cards, but let’s just review a few of the top ones:

No Credit Card Bills

This one basically explains itself – imagine life without them! Plus, you save time each month by eliminating the effort, thought, and financial gymnastics that often goes into paying those bills.

Reduced Risk of Debt

When you pay for everything in cash (either literal cash, a check, or a with a debit card) you only spend what you have. Therefore, any debt accumulation is a planned, researched expense, such as purchasing a home or a car, which gives you greater control over debt accumulation.

Sticking to a Budget Is Easier

The key to success in life without credit cards is a solid budget. Without the security blanket of a credit card, you can only spend what you have. This pairs nicely with the cash envelope budgeting method.

Peace of Mind

For many people, this is the number one reason they ditch credit cards in the first place. Don’t be fooled, it is work to transition from relying on credit to relying on cash. However, in the end, there is a great deal of personal peace that comes from knowing how much money you have and not ever having to think about interest rates, late fees, and penalties again.

A Note on Credit Scores and Credit Card Use

The number one argument that most people present against foregoing credit card use is the impact that it has on your credit score. This is an undeniable fact. Having, using, and paying a credit card is an important means of acquiring a credit history for young people and maintaining it among those without other forms of debt (i.e. car loans, student loans, personal loans, and mortgages). Indeed, many millennials without credit cards have found that it is incredibly difficult to secure a loan for a car, for example, with little-to-no credit history and a low credit score as a result. Often, these young people end up jumping through hoops only to receive higher interest rate loans than those with credit cards (and debt!).

Without debating the specific bad and good aspects of this lifestyle choice, I want to point out a viable workaround for anyone who needs to establish and/or maintain their credit score, but who wishes to lead a life without a traditional credit card: secured credit cards.

Issued by banks and backed by cash, secured credit cards offer lower lines of credit (generally under $1,000) which you put up from your savings. As you use the credit card and replace the balance through on-time payments, you build credit in the same way as with traditional credit cards without the risk of debt accumulation.

The Value of Not Using Credit Cards

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