Credit cards can be a blessing or a curse.
They allow us to buy things immediately that we couldn’t otherwise purchase. They help build our credit scores, which is pretty handy when it comes time to finance a car or buy a house. And they provide an extra layer of protection from theft.
But these conveniences come with baggage. According to the Federal Reserve, the average APR credit interest rate is 15.13% as of May 2019.
It’s easy to sink into credit card debt, but hard to climb back out. So it’s understandable why people want to avoid credit cards. They can be tempting, especially if you’re a spender.
But that raises the question of how to live without a credit card. That’s where this article comes in. Here’s how to thrive in your day-to-day life without a credit card:
Build an emergency fund
One of the first goals of living credit-card-free is to build up an emergency fund. This amount will look different from person to person since everyone’s needs are unique, but a lot of people aim for a $1,000 emergency fund.
This provides a safety net for unexpected expenses, such as car damages or visits to the emergency room. Ideally, you’ll replenish the emergency fund as soon as possible after dipping into it.
With an emergency fund in place, you won’t have to rely on credit cards for immediate access to money. Using credit cards for an emergency is one way people end up with massive debt. You can avoid that by saving up an emergency fund.
Even if you don’t end up using the fund, it will give you peace of mind knowing it’s available. You can spend your monthly budget knowing you have backup money to cushion unexpected expenses.
Monitor your spending closely
This is a good practice even if you do use credit cards, but it’s even more essential if you’re forgoing them. If you’re used to credit cards you may be in the habit of always feeling like you have money to afford something. Because you can always pay it back later.
But that won’t be the case if you get rid of them. Remember, you can’t go into debt to buy anything. So now you have to track and spend your money carefully so you always have enough at the end of the month.
There are a few ways to track your spending and you’ll have to find a method that you prefer. You can create a spreadsheet on your computer, use a phone app, or try pen and paper. A common way to monitor spending is to regularly look at your bank statement on your computer and phone.
But regardless of how you do it, tracking your spending is a must. As always, the goal is to calculate your monthly income and all of your monthly expenses. Then cut and lower costs until you’re spending less money than you’re making.
If you’re worried budgeting will end your fun, don’t worry. There are still ways to have a blast on a budget.
Try using a debit card
There are a few options when it comes to spending money, but an easy option is to use a debit card. Whenever you use a debit card, the money is pulled directly out of your bank account.
Instead of borrowing money with a credit card, you’re now using the money you’ve already earned with your debit card. That means no debt or interest rates.
Using a debit card provides a natural cutoff to your spending– your bank account hitting zero. If you try to purchase something for $200 and your account only has $100, guess what? Your card will be denied and you’ll suffer a little embarrassment.
But that embarrassment can be a good teacher. It conditions you to pay closer attention to your bank account and teaches you to spend less. More importantly, it prevents you from going into credit card debt to make purchases.
Beware: some banks offer a line of credit for debit cards. Meaning it’s possible to effectively turn your debit card into a credit card. Make sure you understand and turn down these offers when they extend them to you. Additionally, make sure your debit card will not work if there’s not enough money in your account.
Consider using a prepaid card
Prepaid cards are another alternative to using a credit card but work differently than a debit card. When using a debit card, it withdraws money directly from your bank account. When using a prepaid card, it withdraws money from a balance separate from your bank account.
Before using a prepaid card, you must first load money onto it. This adds a nice layer of security to your finances since thieves cannot acquire your bank information from a prepaid card.
Prepaid cards are also conducive to budgeting since you must constantly look at your balance before making purchases. It also conditions you to only move the appropriate amount of money to make purchases onto the prepaid card.
An important note: carefully research a prepaid card before signing up. Prepaid cards can have fees, including but not limited to:
- Monthly maintenance fees. Sometimes these can be waived if you use direct deposit to your prepaid card
- Fees for withdrawing at in-network or out-of-network ATMs
- Fees for each purchase
Always carefully read the prepaid card agreement and ask the appropriate questions to representatives before signing.
Use PayPal for online purchases
PayPal is incredibly convenient for online shopping. You can create an account with PayPal that holds money, which you can use to buy online, transfer to your bank account, or send to someone.
The biggest benefit? It’s free. Yep, totally free. There are no service fees for having an account or transferring money to your bank or sending money to your teen at college.
You can connect your PayPal account to a bank account or use select prepaid cards. This is great for security since every purchase is made through your PayPal account. That means you never give your bank account information to sellers online, only to PayPal. And PayPal is an established, trusted brand servicing millions.
Manage minor inconveniences
Are there inconveniences to forgoing a credit card? Yes. But the good news is they can be managed with a little extra work and patience. For example, some purchases will require extra steps because you’re not using a credit card.
As mentioned earlier, debit cards link directly to your bank account while credit cards do not. That means there’s an additional risk to using a debit card.
If someone in a remote part of the world acquires your credit or debit card information, they can make online purchases with them. With a credit card, the fraudster steals money from the credit card company. That means the money in your bank account is safe and the credit card company will sort out the matter.
However, with a debit card, the thief is stealing from your bank account. While the bank should reimburse you, the process may take a while. On top of that, you will have to change your bank account information altogether.
With that in mind, here are a few ways you can improve your security with a debit card:
Use your bank’s alert system
Most banks offer a service that alerts you on purchases. You can set it up to text you every time a purchase over $0.01 is made. This way you are notified immediately of all expenses made from your account. If anything looks suspicious, give your bank a call and sort it out.
Use 2-factor authentication (2FA)
This feature is handy for preventing thieves from making online purchases. Normally, buying online would only require your debit card information and password. But with 2-factor authentication, a text or email is sent to you whenever a purchase is made. You must answer the text or email positively before the purchase will go through.
Keep little money in your account
The strategy here is straight forward. Fraudsters and thieves can’t steal a lot of money from your checking account if there isn’t a lot of money present.
You can open a second account and keep the bulk of your money there. Then transfer money between the accounts as you see fit.
This makes managing your finances more tedious, but it adds a nice layer of security and peace of mind. Not to mention it promotes budgeting since you know you can only make small purchases with the little money in your account.
Consider if this strategy is right for you
Living without a credit card isn’t for everyone, but it can be a necessity for big spenders. No one wants massive debts with high-interest rates. And the easiest way to avoid credit card debt is to simply not have a credit card.
If you plan on forgoing credit cards, use the tips mentioned here to navigate your new lifestyle. Your first goal is to save up an emergency fund. Then find an alternative way to make purchases, whether that’s a debit card, prepaid card, using hard cash, or a combination.
There are some small challenges to thriving without a credit card, but it’s definitely possible. You can navigate the minor inconveniences that come with this strategy by researching and planning.
Is living without a credit card right for you?