You can swear off credit cards and survive. The ubiquitousness of credit cards makes it difficult to fathom a life without one, but it is possible.
The Boston Federal Reserve reports nearly 80% of adult Americans have at least one credit card—meaning one in five of us live a credit card-less life. Some live without plastic by choice, while others go without cards due to a recent bankruptcy, thin credit history or some other issue that makes it tough for them to get approved for a card. (Advice on how to improve your credit score is here.)
Meanwhile, whether you’re living without cards by choice or necessity, here are some tips on how to survive without a credit card.
1. Stick To A Budget
Credit cards can cloud your perspective of how much money you have. Budgeting is a great way to make sure credit cards don’t tempt you to spend more than you have. When you live without credit cards, however, having a budget and sticking to it is more than a strategy—it’s a necessity.
There are lots of great budgeting apps available for free or for a small monthly charge. Here are The Best Budgeting.Apps for 2019.
2. Keep Earning Rewards
One seductive appeal of credit cards is that you can earn points, miles, or cash back based on your spending. Effectively, you’re getting a discount on everything you charge.
But you don’t need a credit card to get rewards. These days, all sorts of companies (from airlines and hotels to Designer Shoe Warehouse (DSW) offer loyalty programs to their frequent shoppers. The DSW VIP program gives you points on every purchase made, a $5 discount on your birthday, and free shipping and points for donating a pair of your kicks to the Soles4Souls charity.
Sites such as Rakuten (formerly eBates.com) offer cash back for your online shopping. By visiting Rakuten to find your favorite online retailers, you can earn cash back of 10% or more.
JetBlue Airways’ TrueBlue, ranked the best frequent flyer program, helps JetBlue customers earn points without a credit card. By purchasing flights on jetblue.com, you can earn up to five points per dollar spent and get up to 10,000 bonus points after buying a certain number of flights. Inquire about loyalty programs wherever you shop the most. (Read more on Loyalty Rewards With No Credit Strings Attached.)
Meanwhile, rewards tied to debit cards—those pieces of plastic that link directly to your bank account—are also spreading. This is a reversal of what happened after 2010, when Congress required that banks charge merchants a lower swipe fee to cover bank services such as authorization, clearance, fraud protection and settlement. The change was intended to help lower retail prices, but it caused some banks to nix their debit card rewards; since the provision only applied to debit cards, banks decided to move their bonus features to the credit realm.
But with Millennials wary of piling credit card debt on top of their student loans, and online banks becoming more competitive, debit card rewards have started spreading again. See Startup Aims To Be Millennials Bank With Cash Back Debit Card High Interest On Savings.
Major card issuers like Discover, American Express, Bank of America offer debit cards with cash back programs. You may only be familiar with Discover and American Express as credit card providers, but they’ve branched out into the debit space too.
3. Plan—Particularly For Travel
A credit card-less lifestyle goes against the mainstream grain, so it can take some planning. That’s particularly true when it comes to travel. Renting a car or reserving a hotel room has traditionally required a credit card since these services put a hold on your account. But increasingly, service providers have been ready to take a debit card instead.
Make sure when using a debit card that you have two forms of valid ID—one should be a driver’s license—and enough money in your account for any costs that you might rack up. Warning: A car rental company may place a hold against your account of up to $200 as a deposit in addition to the estimated rental charges. So your hold could easily total $500 or more.
4. Consider A Secured Credit Card
If you don’t want to be tempted to spend money you don’t have, or can’t qualify for a regular credit card, consider opening a secured credit card. A secured card works like a regular credit card but requires you to place a security deposit matching your credit limit.
When you use the card, you’re required to make a monthly payment—it’s not taken automatically from your deposit. In that way, you can build up your credit history and score. Moreover, you can use a secured card if you don’t want to use your debit card for car rentals or hotel reservations. As with other cards, the amount that’s charged as a hold against your account won’t be available to you. But that’s not a problem if you’re only using the secured card for this purpose. Consider using a secured card with a sizable credit limit to cover any deposits or holds.
(If poor credit is what’s holding you back, read our review of The Best Credit Cards If You Have Bad Credit.)
5. Get Rid Of The Card – Not The Credit
If your card-less life is a choice, consider snipping your existing cards up (or hiding them out of sight) without closing the accounts. Your credit card accounts are part of your credit history, which is tracked by credit reporting bureaus and then used to calculate your FICO or other credit scores. As long as a card is open, it’s part of your history. But if you cancel a card that you’ve dutifully paid on time, that sterling record will disappear after 10 years.
According, to Equifax, a closed credit card that was in good standing stays on your credit report for 10 years. An account in bad standing closes after seven years. You want to keep a good credit history on your report and you also want to show off your long credit history, which accounts for 15% of your score.
In addition, closing a credit card could affect your credit utilization ratio. That’s the ratio of your outstanding balances to your credit card limits. A low utilization ratio has a positive effect on your credit score while a high ratio can be a negative. If you have $5,000 in total credit limits and you owe a total of $1,000 on your cards, your ratio is a low of 20% ($1,000 / $5,000). However, if you close a card with a limit of $3,000 and you still owe $1,000, that increases your ratio to a not-so-hot 50% ($1,000/$2,000). For more, read A 60-Second Guide To Credit Utilization.
“If you have a (card with a) high credit limit, you have a strong history with that [and] it’s in good standing, you may want to keep that,” advises Paul Golden, of the National Endowment for Financial Education. The higher limit will help offset any credit balance that you have, he added.
If you feel strongly about closing a card or two, TransUnion suggests planning the closing after major property purchases like a house or car—purchases you may need a high score for.
Some people use their credit cards once a year and then quickly pay off the balance to help their credit score. This helps keep your payment history in good standing but also prevents your bank from closing your account because of inactivity. Others rely on installment credit like auto or student loans to help build their credit score.
6. Continue to Review Your Credit Report
When credit cards are out of sight, credit reports can be out of mind. You don’t want your credit report to go unmonitored. With every report, look for any signs of identity theft, such as counts you don’t recall opening or inquiries from companies you’ve never given your personal identifiable information to. Items that look fishy or inaccurate should be immediately disputed.