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7 secrets of living without credit cards

by Bundle.com

Just a few short years ago, it was inconceivable that American shoppers would start to give up paying with plastic. But in the wake of one of the worst economic crises in history, more people are choosing to kick credit cards to the curb. During last year’s Black Friday shopping, about half as many consumers paid with plastic as had the previous year, according to America’s Research Group. And credit card ownership dropped to 67 percent in 2010 from 71 percent in 2008.

What’s it like to live your life off the credit card grid? Is it liberating? Inconvenient? Will your friends think you’re weird? I chatted with a few cash-only converts to find out. Here’s what they said:

You’ll spend less. Ditching credit cards will re-tool your financial perspective like nothing else. All of a sudden, it’s literally impossible to spend beyond your means. If you don’t have the money, you can’t squander it — period. “There’s a definite difference in spending when you use a credit card than when you use a debit card,” says Adam Baker, 26, author of ManVsDebt.com and currently credit card free. “When you’re spending with a credit card, you say, ‘How am I going to pay this off at the end of the month?’ With a debit card, you have to say, ‘Do I have enough money for this in my account?’” In fact, this Bundler spent less after he froze his credit cards into a block of ice.

You’ll probably save more. If you’re living without credit cards — and especially if you don’t own them anymore — you’re forced to come up with a safety net that doesn’t involve 16 digits and an expiration date (or 15 digits if you’re using an American Express card, but I digress). Without a plastic cushion, you’ve got to have actual cash on hand for that unexpected car repair, for a job loss, for a medical emergency. “A lot of people use their credit cards as an emergency fund,” Baker says. “So they don’t have savings. My wife and I have about $10,000 in an emergency fund right now. If we had $20,000 in credit card limits, we may not be as serious about it.”

Renting a car is more of a hassle. For most merchants, credit cards and debit cards are fairly interchangeable. Not so when you’re traveling, unfortunately. While most rental car companies accept debit cards, many of them will also place a hold on your available funds — enough cash to cover the cost of the rental car plus reasonable repairs if you return a dinged vehicle. If you’re living close to the edge of your bank account balance, that could be seriously inconvenient. But then, if you’ve got a monetary cushion (since you’re living a cash-only life, after all), this fact shouldn’t make-or-break your no-plastic policy. “Some people can’t get past that, and they use this one issue of renting a car to justify credit cards,” Baker says. “I feel that’s very dangerous, because credit card use may do much more damage than a four- or five-day $500 hold would do.”

Ditto for getting an apartment or a house. Like it or not, using credit cards may allow you to maintain a pretty stellar credit score. And without them — well, not so much. (Check out this Bundle comic on the subject.) Doug McLaulin and his new wife discovered that fun fact after looking for a new apartment. “One of the first things they want to look at is your credit rating,” he says. “We had to show them proof of income and proof of our financial stability. It just took a little bit more time.” And it may take a lot more time — or a co-signer — if you’re trying to buy property. Mark Bradley, 40, recently tried to acquire a home loan and had difficulty due to his lack of credit score. “At 40 years old, I shouldn’t require my mom to co-sign,” he says. “If someone who works for 20 years and has zero debt can’t get a loan, then who can?”

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Not everyone thinks it’s smart. Some people feel that a cash-only existence is for people who simply can’t get a handle on their credit card spending. “I run into a lot of people who think that the intelligent play is to get a credit card,” Baker says. “They think you should avoid credit cards and use debit cards — unless you can control yourself. They think credit cards are mathematically the right decision.” Be sure to tell those people that multiple studies have shown that people tend to spend more when they use credit cards than when they use cash.

You can always go back. Janet Wallace, 38, dumped credit cards a decade ago and had been living happily without them ever since. Now, however, she’s married with a mortgage and a child and she’s the breadwinner of the family. She decided to apply for a credit card again. “We’re still living day-to-day, as many people are,” she says. “And it sounds crazy, but because the job market is unstable, I wanted to have a cushion in case I got laid off or we had any emergencies come up. I just wanted to have that extra wiggle room, should I need it.”

There’s a psychological benefit. Imagine how you’d feel if you never had to face another credit card bill. (Or if you didn’t have a $10,000 credit card balance, as this Bundler does.) Visualize an existence in which you never had to worry about late fees or minimums or credit card interest rates. For McLaulin and his wife, living credit-card-free has simplified their finances. “We pay for something once and we’re done with it,” McLaulin says. For Genelle Brooks-Petty, 34, and her new husband, putting the plastic away has drastically improved their bottom line. “We have reduced our debt by about 75 percent,” she says. “And we haven’t incurred any new debt. Our wedding was paid for shortly after we got back from the trip, and I’m in graduate school with tuition paid in cash.”

Adam Baker points out that credit card companies offer rewards to make customers think they are getting a good deal. But the best reward, he says, is that by living without plastic, “it’s easier to manage your finances.”

Could you — or would you — live without plastic?

Original article on Bundle.com: 7 secrets of living without credit cards

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Published 07/01/11 (Modified 05/23/12)

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