Why Stop Using Credit Cards?

Is it wise to stop using credit cards? Or, indeed, to stop buying goods and services using any sort of credit? The problem with debt is that you have to use some of today’s income to pay for yesterday (because you need to make monthly debt repayments). If you want to achieve your dream lifestyle, you may want to become debt-free, and use all your income for today and a better tomorrow.

To live within your means – to spend less than your income – you’ll find it much easier not to buy on credit. Let’s take a simple example: your monthly income is $3,000.

Imagine it’s the first day of the month. Your employer has paid you last month’s wage of $3,000 in cash. You don’t have a bank account. The cash is sitting in your pocket. Also, imagine you don’t have a credit card (a physical credit card or on your phone). And, for whatever reason, no-one will lend you any money.

In these unlikely circumstances, unless you receive further monies, you will not be able to spend more than $3,000 this month.

But if you had a credit card, you could spend more than the $3,000 – up to your credit limit. In one easy swipe, you could circumvent your intention to live within your means.

Paying Off Your Card Every Month

Of course, if you pay your card down to zero each month, you can still use a credit card for convenience. Yes, it’s possible. I still do it now and again. But not as much as I did in the past.

The challenge with paying your card off monthly is remembering to do it. You can set up a direct debit, but it adds to your bookkeeping time because you need to ensure you have sufficient funds in your bank account to pay the direct debit.

In the rare case that I use my credit card to make a purchase, I clear the balance straight away. I never wait for the end of the month.

What if a Hotel Insists on Card Payment?

It’s not impossible to do without payment cards but, in today’s world, it can be difficult. For example, when you make online purchases or book a hotel in advance. Most times – maybe every time – a debit card will do just as well as a credit card, as far as the supplier is concerned.

I use a prepaid debit card. I transfer a budgeted amount from my bank account onto the card at the start of the month. The card is connected to an App, which lists every time I spend. This makes it easy to track my spending during the month.

How to Stop Using Credit Cards as a Lifeboat

Even if you live within your means, you need some sort of money lifeboat for times when you hit a financial iceberg. For example, if you suffer a major drop in income or get hit with a large and unexpected bill.

You can largely deal with such happenings by budgeting. You accumulate money in savings accounts that you draw on at the appropriate time. For example, you set money aside in a house repair sinking fund. But, even if you have these savings, you may not be able to withdraw the money immediately.

If the need money today, where will you get it? A credit card is one way. But, if you’ve decided to stop using credit cards, you need to build an emergency savings fund.

Credit Ratings

If you think you might want to take out a loan – including a home mortgage - at some future date, it would be best to research the impact on your credit rating if you were to stop using credit cards.

I checked this out with a mortgage broker recently. He said that most mortgage lenders won’t lend to people who have no credit rating. But some lenders will. You’ll need to find out the position in your region.

For example, if you have been using a credit card but now want to stop, you might consider keeping the card rather than closing the card account. It all depends on the advice you receive. What is clear is that, even if you own a credit card, you don’t have to take it out to the shops.

Weaning Yourself Off Credit Cards

You can set a goal to stop using credit cards. But, depending on the state of your finances, you might not be able to call an immediate halt to credit card spending. But no worries. If it's really important to you to stop using credit cards, you can look on this as a long-term project. Any worthwhile goal can take time to achieve. Action is key. It's time to take control.

If you’ve been using credit cards several times a day or several times a week, you need a step-by-step plan. For example:

• Make a commitment to stop using credit cards by a certain future date
• Pin a date list to your fridge door
• Mark the list each day to say whether you used your card that day
• If you don’t have an emergency fund, start building one
• If you don’t already make a monthly budget, start on this
• Don’t take your credit card when you go shopping
• Use a debit card instead (maybe prepaid), or even cash
• Transfer regular autopayments on your card to a different payment system
• If relevant, get advice on the impact of card spending on your credit rating

You can see that the second step of the plan – after setting your goal to stop using credit cards – is to pin a date list to your fridge door. You can use a different method, but the idea is to keep a record of which days you manage to get by without resorting to your credit card.

Whenever you want to start a new habit, it’s good to take action right away. Making a date list is easy. You just need paper and pencil, or some digital mechanism. Consistent action is the key to achieving any goal.

What If You Owe Money on Your Credit Cards?

If you have card debt you want to repay, see my articles on how to become debt-free.