More and more Americans are choosing to live without credit cards.
According to a poll conducted by CreditCards.com 29% of Americans now do not have credit cards, up substantially from pre-recession numbers. Many people find that not having a credit card helps them to stay out of debt.
The temptation of just charging lunch, gas, the phone bill etc. is just too great so they opt instead to live on the cash that they have.
Be careful though, every decision also comes with a downside. Cash is great for predictable daily purchases like gas, lunch, groceries, etc., but some transactions require that you have at least a debit card. These include things like reserving a motel room or renting a car. Debit cards combine the convenience of a credit card with the discipline of cash: ie when the money is gone your spending has to stop. Debit cards also avoid the disaster of having dozens of small checks bouncing generating bounced check fees.
Debit cards however are not as safe as credit cards. If someone gets your credit card number and runs up fraudulent charges you are protected by the Fair Credit Bill Act. Under the FCBA, fraudulent charges can be easily disputed by the card holder. Debit card holders do not have the same FCBA protections. You are responsible for up to $50 of fraudulent transactions on a debit card when reported within two days. After two days that jumps up to $500 and there are no cardholder protections if reported after 60 days. Many banks offer additional protections to their debit card holders, but those protections can vary wildly between banks.
Most security experts advise you to never use a debit card for online purchases. A credit card is much safer and many security experts also advise you to use a credit card rather than a debit card in restaurants where the card is out of your sight for periods of time as well as for travel arrangements like hotel or cruise reservations where they have to keep your card information for weeks or months prior to your arrival.
Recurring charges are another area where it is generally wiser to use a credit card. It is a lot safer for a transaction to hit a credit card on the tenth day of each month than it is for it to hit a checking account (particularly if you don’t keep a $1000 minimum balance).
Not having a credit card makes it easier for you to get out of debt, but closing all of your credit cards is not helping you to build up your credit score. The FICO score is used to set your car and auto insurance, determine your mortgage rate, determine how much you pay for auto loans, and even is checked by potential employers. People who use credit cards (and never pay late) are generally going to have higher credit scores than people who do not. Paying more for insurance, auto loans, business loans, and mortgages can be very costly over the course of a lifetime.
It is important not to get deeply into credit card debt, but having credit cards (if you can control yourself and not abuse the privilege) can help improve your credit history while offering you some conveniences and protections against identity theft.
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