More and more people are opting to live without credit cards, since many of us get swept up in the convenience of the buy now/pay later mentality. That could be why the country is almost $800 billion in credit card debt. I know, I was one of the people swept up in the convenience of credit cards. So I decided to cut the cord and find out what is was like to live without credit cards.
Living without credit cards is not as easy as just cutting up your cards and never looking back. What about emergency situations? And renting a car, which is hard to do without a credit card? Or, worse yet, what will it do to your credit score? These are all valid questions, but if you prepare properly, you can still live without credit cards and continue to have a healthy lending history.
Here's what I learned in my journey of living without credit cards.
Have money saved for emergency: Having credit cards is especially helpful when you run into financial emergencies, like for expensive repairs to your house or costly medical bills. I had an emergency come up four days after I gave up my credit cards and ended up asking my parents for money. Embarrassing.
Before you completely give up your credit cards, make sure that you have an emergency fund tucked away so that if some of these emergencies happen, you won't be stuck without a way to pay for them. Keep adding to the emergency fund whenever you can, since you never know when you could be forced to use it.
Don't cancel your credit cards: The first thing I did when I decided to forgo my credit cards was to cut them up and cancel the account. Big mistake. Granted, most people stop using their credit cards because they don't feel comfortable having the option of using them, and not having them around will take away the temptation. However, this can have a major impact on your credit score.
Your credit history is a huge part of your credit report, and all the good credit you've built up by having your credit cards for years will be instantly wiped out the minute you cancel them. This could make it more difficult to qualify for a mortgage, car loan or even be approved to rent an apartment.
Keep track of your credit: Obviously, I wasn't very concerned with my credit score or reports when I cancelled my credit cards. That was, until I went to apply for a car loan and was rejected several times. By the time I finally did check my score, I found that it had dropped dramatically.
If you do decide to cancel your credit cards, make sure that you are consistently checking your credit reports and scores to make sure you haven't dipped into a "poor" or "fair" credit rating. This is going to make it more difficult for you to receive any kind of lending or even be approved for jobs or rentals. If your scores do end up falling because of your cancelled credit cards, here are a few things you can do to boost your credit score again.
Keep a diversified credit portfolio: Once I found out my credit score was so low, I researched a number of ways to bring it back up again. Luckily, your credit reports and scores are not based solely on your credit cards, which is good news for those who want to live without them. Before you give up your credit cards, make sure you have a diversified credit portfolio that includes a mortgage, auto loans and other types of lending. While this won't completely keep your score from dropping, it'll hopefully keep you in the "good" range of the credit scoring.
Try using a secured credit card: Yes, you want to live without credit cards, but a secured credit card is different. These cards usually have a much lower credit limit ($300-$500) and those are usually based off the amount of deposit you put down on the card, so you are essential using your own money to borrow against. The benefit of a secured card over a prepaid card is that most secured credit cards report to the three credit bureaus, so they can be used to keep your credit score up while diversifying your credit portfolio. They also can be used to rent cars and put holds on hotel rooms, which are more difficult to do with debit cards. Here's quick roundup of some of the best secured credit cards.
While living without credit cards can be tricky, it's not impossible. I am living proof of that. Try using the tips above and you should be able to get rid of your credit cards and still have a positive lending history.
-Rachel McMahon, Simple. Thrifty. Living.
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