PROBLEM #13: To use credit cards, or not?
I’ve been following and reading several financial blogs recently, and many of them have confessed (well . . . stated, but I’m not sure how confident they actually were) that they use credit cards as a part of their financial plan. The plan goes like this: You use a credit card to buy some necessities such as maybe gas, furniture, or clothing. But, you pay the balance in full every month. They state benefits such as rewards and airline miles (looking at you Capital One – “What’s in your wallet?”). They also tout high credit scores and other “perks” such as “no interest loans” or “readily available rental cars and hotel rooms”. From my perspective this is living dangerously and can create PROBLEMS.
For the first 10 years of our marriage, my wife and I used credit cards exactly like these financial bloggers. Our budget always seemed to be a struggle to master. We needed a SOLUTION. So . . . we recently cut up our credit cards. I’ll give you 3 good reasons why we gave up our credit cards, and you should too.
Reason #1: What if you can’t pay off your balance in full each month.
This is major tenant in the you need credit cards group. “Always pay your balance in full each month.” But if for some reason you don’t pay your balance in full each month – you will get charged interest (we all know this). Interest on things you should never pay interest on – like groceries, gas, or light bulbs.
“Well, I’ve always paid my balance in full each month so far. What would ever change?”
You may say, “Well, I’ve always paid my balance in full each month so far. What would ever change?” Just a word of warning . . . If you think like this – you haven’t been alive long enough. Life has a way of causing negative things to happen. Eventually, you will need a new transmission in your car, a new roof, or refrigerator. Maybe even in the same month. Hopefully you have some sort of emergency or rainy-day fund to cover those things as they come up. But if you don’t, what do you do? Charge them, and worry about it later? This reasoning/planning sets you up for disaster. We all know how bad credit cards can be if you don’t pay them off each month. (compounding interest can work against you too) This bring me to reason #2.
Reason #2: Credit cards should not be your financial safety net.
If you have an emergency/rainy-day fund, then why do you need a credit card? Many people say, “I only have it in case of an emergency.” I can’t emphasize this enough. Don’t use credit for an emergency! This is the absolute worst time to ever turn to credit cards. Imagine in the middle of a crisis – the stress of the emergency – and you have to charge it. Now you have the stress of paying the credit card off too. An emergency fund takes care of this. The stress of the emergency is stress enough. Why add to it?
Reason #3: Contrary to popular belief – you don’t actually need credit cards to live.
Granted, I don’t have as much personal experience with this one. I haven’t been credit card free for a lengthy amount of time. But our debit card can be used as a “credit” card in places you would normally need a credit card (online, rentals, and hotels).
Another reason people give about why they use credit cards is for the perceived safety and security of your transactions online. “What if someone gets your information? They could wipe out your checking account!” This is simply not true. We have the same disputing features from our local bank as the major credit cards. Any transaction that we did not initiate – we have the opportunity to dispute and remove. Most banks offer this – you just have to ask them about it. Also – the majority of your money should not be in your checking account. If, in the remote chance, it does get wiped out, you won’t lose everything.
Bonus Reason: When you use plastic (credit or debit) to purchase items – you tend to spend more.
This one is very dependent on the specific person. For instance, one person might go into a store with 2 particular items in mind to buy. They walk in – purchase those 2 items – and walk out. Others may struggle more with impulse purchases, and walk out with those 2 items and 2 extras. Retail stores are masters of snagging the weak-minded (financially speaking), and they thrive on getting you to purchase more than you originally intended. But, if you use cash (as we do for groceries), you can only spend the cash you have. It limits the amount of impulse buying opportunities. There’s just something different about handing over your hard-earned cash.
Check out even more reasons to not use credit cards here.
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