Can You Live Debt Free and Still Have Credit Cards?

27 Jan Can You Live Debt Free and Still Have Credit Cards?

Can you live debt free with 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.

Paying Cash for Purchases

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.


  • James Dibben
    Posted at 06:44h, 27 January

    Good article, Matt.

    Let’s look at my specific situation and get your feedback.

    Julie and I are renters for the first time in our 21 years of marriage. This started three years ago when my business went belly up. We lost the house AND our 750 FICO score. I cut up all 7 of my credit cards (Because Dave said so, literally, he read my email on the air).

    So now my credit score is in the dumps; probably around 500.

    I have two options to get us into a house.

    1. Save up a 50% down payment and hope a credit union will loan us money for a mortgage based on information other than our FICO score.

    B. Get a $500 limit credit card and buy a tank of gas on it each month (paying it off of course) and build up credit the traditional way.

    Since I have not had a credit card in 4 years this freaks me out a little bit. I honestly love this lifestyle but I cannot be a renter for the next 5 years trying to save up such a huge down payment.

    • Matt Wegner
      Posted at 07:46h, 27 January

      Great real-life example James. Dave Ramsey’s method of paying cash for everything really works best when you’ve already got a house (with or without mortgage) or if you have a local bank/credit union that still does manual underwriting. Yes, you can save up a large down payment, which takes time. Or like you said, you can get a gas card and pay it off every month. You still have to watch your gas expenses so you don’t go over budget each month though. Sometimes I’m ok with a Kohls card too, since they allow you to pay off your balance at the point of purchase. That lets you use a cash envelope system while still getting the extra discounts with your Kohls card.

      • James Dibben
        Posted at 10:15h, 27 January

        Julie is a lot more disciplined than I am. She will be the one with the card.

        I love the Kohl’s idea! We get a lot of our clothes from there. I just need to make sure it reports to the credit bureaus.

        • Matt Wegner
          Posted at 21:22h, 27 January

          I’m pretty sure Kohls does report on the card. Actually I think they may contract through Chase? Not 100% sure though. From what I hear though, they’re really quick to ding your credit report for the smallest discrepancies. Smart move letting your wife keep the card 🙂

    • Jon White
      Posted at 13:16h, 27 January

      James, have you tried using a service called eCredable? It’s a service that is competing against the FICO score. What I love about it is that unlike the FICO score it uses all forms of payments including rent, utilities, phone bill, and you cable bill to calculate your credit worthiness. Steve Stewart did an interview with their CEO on his podcast ( and I hope this catches on as an alternative to the FICO score as a way for people to get loans.

      • Matt Wegner
        Posted at 21:27h, 27 January

        Jon, do you know if eCredable takes into account additional factors like net worth or assets on hand?

        • Jon White
          Posted at 07:33h, 28 January

          I don’t think so Matt, just your payment history, but it includes payments on things that the FICO score doesn’t consider like utilities, day care, rent, etc.

          • Matt Wegner
            Posted at 08:30h, 28 January

            Well, that’s a lot better than the beloved FICO score. Good info, Jon.

      • Steve MoneyPlanSOS Stewart
        Posted at 16:15h, 13 February

        Hey Jon, thanks for mentioning my interview with eCredable. I’m all about showing my great payment history (eCredable), not just a one-sided tool measuring debt payments (FICO).

  • Jackie Walters
    Posted at 07:53h, 27 January

    It is much easier to live debt free with cash. The temptation is too high when you have a credit card in your hand.

    • Matt Wegner
      Posted at 07:58h, 27 January

      I agree Jackie. Someone recently compared credit cards to power tools. Without the proper training, it’s very easy to get hurt. With proper training and safety measures, you can use the tools responsibly. That’s from the camp that thinks debt is a tool to be used wisely. I would add, however, that all the training in the world doesn’t make the tool itself any less dangerous. It still comes back to how you use the tool. One lapse in concentration and you can still cut your fingers off.

  • Jon White
    Posted at 13:11h, 27 January

    Matt, you can pretty much put me into camp #2. I do not think credit cards are evil or of the devil or anything like that. But I have seen how they can harm people financially. Another way I view it is like smoking. Yes, you can smoke your whole life and never get cancer, but to say it never impacted your health negatively would not be a true statement. Likewise with credit cards, you might never carry a balance on your card, but the overspending, the not paying attention to where your money is going, and the missing out of discounts by using cash will impact your ability to improve your finances.

    • Matt Wegner
      Posted at 21:25h, 27 January

      I tend to agree with you Jon. So many people lack the discipline and know-how to keep from getting burned.

  • krantcents
    Posted at 14:53h, 27 January

    I have used credit cards for over 40 years. I never had a balance because I pay the entire balance every month. Having a credit card is a responsibility and you have to exercise some restraint.

    • Matt Wegner
      Posted at 21:31h, 27 January

      Yes, and I think that’s the problem – not enough people are able to exercise restraint. There are a lot of spendaholics out there and credit cards make it too easy to feed the addiction. I always paid off my credit card each month, but I never had as much money left over at the end of the month as I did when I switched to an all cash method. But the cash-only thing doesn’t work well for some people either.

      I think it’s awesome that you’ve used plastic responsible for so long. You’re doing much better than the majority out there.

  • Cindy Hirch
    Posted at 08:41h, 28 January

    Hi Matt,
    Love your article. I can definitely see both sides of the coin for having or not having a credit card. Personally we use one and pay it off each month. This card also gives us points that can be used for a host of things. We get dining out cards with it which for us is a great way to eat out with no out-of-pocket expense. If we don’t have a dining card we don’t go out to eat.

    The control for us is that we have a budgeted amount for use of the the card itself and don’t extend past it. We do charge items that I have in my regular budget with the exception of food. I like having cash for that as I find it could be very easy to overspend in that area if put on credit.

  • Trey Smith
    Posted at 07:31h, 31 January

    Great post. I am also in the latter camp of not advocating for credit. I use the example that if I say no to buying cookies while in the grocery store, I will not have to say no every time I open the kitchen pantry.I look at credit cards like having come cookies in the house and it is too easy to use them if you have them.

    • Matt Wegner
      Posted at 07:43h, 31 January

      Good analogy Trey. I have a soft spot for cookies. When they’re in the house I gain a lot of weight 🙁

  • Penny Stock News
    Posted at 15:22h, 31 January

    You need disciplined! Definitely live like you are cash-only, but put everything (including monthly bills paid by check) on to a credit card with good rewards. You will pay the balance off in full every month since you are treating it like cash, never paying interest.

    The rewards should earn you plenty of free travel if you opt for a miles card, or general shopping if you stick with a basic points card. Just stay away from cash back – the rewards are usually significantly less then if you used miles.

    • Matt Wegner
      Posted at 18:30h, 31 January

      I’m not a fan of putting everything on the credit card for rewards. Yes, with discipline you can keep it paid off and earn some form of rewards. But what I’ve found is the rewards were justification for me to spend a little more. Supersize? Why not! It’ll help me build up some more miles. Who’s buying? I will! I need that vacation!! So we trick ourselves into spending more so we can save a measly 1% or 5%. When I had a GM rewards card back in the day, I had to spend $60,000 to earn my max rewards of $3,000 toward a new vehicle. I realized if I stopped justifying the extra spending I could save a lot more in the bank and get a cash discount for the car. Plus, I could avoid financing so in the end I was better off not having the credit card. Purely psychological, I know. But I can’t argue with the results.

  • Emily @ evolvingPF
    Posted at 19:20h, 05 February

    I can see both sides of this debate but fall in camp 1. I don’t use credit cards to build my credit score though, or to rack up rewards (although we do use rewards cards). I think it’s important not only to pay off credit cards monthly but to combine their use with a budget. I think that the best argument against using credit cards (assuming discipline) are the studies that show people experience less psychological pain when using plastic over cash and therefore spend a bit more. This risk can be mitigated with strict budgeting, however. To me the conveniences and benefits of using plastic (primarily auto-tracking of purchases) outweigh the potential risks. However I have already decided that if I ever start to think of credit cards as a crutch that it’s past time to cut them up.

    • Matt Wegner
      Posted at 15:07h, 11 February

      Right on, Emily. If you combine a proactive and balanced budget with the use of credit cards, I think you can do ok. It’s mostly a matter of discipline, which a lot of people struggle with.

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  • Steve MoneyPlanSOS Stewart
    Posted at 16:22h, 13 February

    Camp 1 is right. Camp 2 is right. The problem is in being diligent to pay off the cards 100% of the time. Not 99% of the time because that would mean interest payments or late fees.

    Oh, and how about over-the-limit-fees? Yes, you could have over-the-limit-fees with a debit card but anyone who is living without credit cards has either:
    1) Decided to be more careful with their money
    2) Had them all taken away from them (meaning they couldn’t make the payments anyway and would probably do better without them going forward).

    So I teach my clients how to live in Camp 2 since there is a much smaller percentage of the population who can possibly live in Camp 1 and use their “tool” properly 100% of the time.

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