27 Jan Can You Live Debt Free and Still Have Credit Cards?
The debate on credit cards vs. all cash lifestyle
Lately it seems like I end up in a lot of conversations about the use of credit cards and whether or not you should use them. In one corner, you have the belief that credit cards are a tool to be used wisely. In the other corner, you have the belief you truly want to live without debt you should cut up your credit cards and never touch them again.
For quite a few years I’ve been in the latter corner. I hate credit cards. And even though I started adult life in the former corner it seems I had an epiphany four or five years ago to make me think I couldn’t live debt free if I had a credit card in my wallet. But with all the valid points presented in many of the discussions I’ve had as of late, I began to wonder if I I’ve become an extreme fiscal conservative. I mean, what if, *deep breath,* I’m actually wrong about something?
So I thought I would examine both sides of the argument and put my thoughts on paper (electrons, rather) to share my reasoning.
Camp 1: Credit cards are a tool to be used wisely.
The group of consumers who fall into this camp tend to be concerned with their credit score in general. In fact, the primary argument used in favor of using credit cards is that they help build your credit score. Building your credit score is what positions you for success in life.
Smart use of credit builds your credit score, which qualifies you for better interest rates, which in turn helps you build your credit score. Wait a minute, there’s a trend here. Do you need a credit score if you don’t borrow money? Hmmmmmm.
Now, to be completely fair I need to admit that places like employers, insurance companies and rental complexes are using credit scores to determine your risk worthiness. And one of the best ways to build your credit score is to have a credit card and pay it off regularly. Hence, the point can be made that if you build a good credit score you do have some financial advantages in life.
Credit cards and debt as tools
Despite the argument to keep a credit card for building your credit score, folks in this camp typically agree that too much debt is bad. But even though they agree debt can be bad, they generally consider debt to be a tool. As long as you use it wisely, credit can get you farther in life.
The key is to pay off your credit card balance every month. As long as you do that, you’re theoretically being wise with your money. You can even get money back with cash back credit cards. Hey, it’s like you’re using someone else’s money to buy things and get paid to do it, right? That sounds like a great deal.
Now the question becomes, can the average person exhibit the discipline to pay off their credit cards every month and not overspend on impulse buys? This is where the other camp of consumers comes in.
Camp 2: Credit cards stink and should be avoided like the plague.
These consumers are anti-credit cards all the way. Credit cards are by definition a form of debt, so the principle of using one, even if you pay it off each month, is a bridge too far in this camp. This group isn’t overly concerned with their credit score because they don’t borrow money.
The main argument against credit cards for this group is that credit cards cause you to spend more money. The theory (with some studies to back it up) is that credit cards have no visual element to them when you spend money. Because of this, you aren’t able to track your expenses as real-time as you can with cash.
Additionally, studies indicate that you literally feel some pain in your brain (and insane in the membrane) when you spend cash. Conversely, you feel next to nothing when you pay with plastic. With statistics showing consumers spending 12-18% more with credit cards than with cash, this camp tends to be a cash-only group of consumers.
Cash is King
Living a cash only lifestyle gives you a visual system to manage your spending. For some people it’s easy to blow through a pile of cash. It helps to separate the cash into envelopes or money jars so you can track how much you have left by category. The benefit of this method is you can’t spend money when the cash is all gone. If you don’t carry a credit card, you force yourself to stick to the plan.
On the flip side, a lot of people don’t like carrying a ton of cash in their pockets. They feel unsafe and insecure. But nobody knows if you have credit cards or cash in your purse or pocket, so what’s the difference?
And so it is. Two sides of the argument. One that says debt is a tool and it’s fine as long as you pay off your balance each month. And the other side that says credit cards are stupid and using them is playing with snakes.
So can you live debt free while still using credit cards?
Yes, it’s possible to live debt free and still have credit cards. But it sure takes a lot of effort, planning, and hard work. It’s very common to lose track of your expenses when you’re paying with a credit card. Even when you have the money in your checking account to pay off the balance each month, that doesn’t mean you’re maximizing the use of your money or spending as little as possible.
Without a proactive budget where you plan your expenses and hold yourself accountable to the plan, you’re missing the opportunity to be the best you can be with your money. When I still had credit cards I paid them off every month but there was always some expense that I (or my wife) forgot about. Or an impulse buy. Or a larger than expected expense. We simply spent more than we wanted to.
I think had we budgeted then like we do now, it would be a little different for us. But the point is, you still have to do a proactive budget every month and track your expenses like a hawk. And you have to avoid the temptation to buy things when you don’t have enough money to pay for it.
In my book (and my experience) it’s a lot easier to stay debt free by taking away the temptation and switching to cash. Which is what I did more than five years ago. Oh, did I mention that I’ve been successfully living without debt for years?
Am I going to start using credit cards again? Man, it sure is tempting sometimes. Especially since I’m self-employed and sometimes we have months where we’re not sure if we’ll have enough money to cover all the expenses. Yes, that’s what we have our emergency or hill & valley funds for but we really hate dipping into them if we can avoid it. So the credit card would make it REALLY easy to buy things without having to worry about it for another 30 days. Oh, the things I could get if I just had a little credit in the form of a plastic card again!
But that’s the problem, isn’t it? Credit cards make it too easy to dig yourself into a hole. I think I’ll stick with cash.
Readers, what do you think? Is it easier to live debt free with credit cards or with cash? Leave a comment and let me know your thoughts.