Life Without Credit Cards: It Can Be Done

No one can discount the convenience offered by credit cards, but plastic is not the only type of currency available to you. While credit cards do offer convenience, you are paying for that convenience each time you offer plastic as payment at the register. It’s important to consider both the amount you pay each month in interest on your balance and the occasional late fee. Together, those costs can really add up over time—and if left unattended can grow into a financial disaster.

Don’t immediately write off credit cards. Having an account with a credit card company (that you pay off on time every month) helps you build credit, which is vital for your future; things like renting an apartment or buying a house or car require a good credit score.

If you aren’t ready for a credit card, or if you’re recovering from credit card debt, there are several alternatives to using credit cards. Try some of the following options to reduce the likelihood that you'll get into money trouble:

• Pay with cash. Keep enough cash on hand each week to pay for everyday needs like groceries, gas, and an occasional coffee. Set a budget, and when the money runs out, wait until the following week to make any further purchases.
• Bank online. Most banks offer online bill payment (often as a free service). It involves setting up transfers from your checking account to pay bills directly. You select the date, and have the option of making a weekly or monthly payment for recurring bills—such as utilities and rent. Online banking often allows you to save money on stamps, too.
• Use debit cards without PINs. These cards, sometimes called check cards, offer the convenience of not having to carry cash, but still draw from the available funds in your checking account. By tapping money you already have, you can avoid “borrowing” on credit cards —including the additional interest and possible late-payment fees associated with them.
• Open a "secured" credit card. These cards provide a means of establishing a credit record, but within a predefined, safe set of boundaries. Initially you are required to make a cash deposit (typically $200 to $5,000) and pay the bill each month, much like with a traditional credit card. Your credit limit is generally the same as your initial deposit, which the credit card company retains as a guarantee that you will pay your monthly bill. Be sure to compare annual fees of secured credit cards and look for one that does not charge a monthly or per- transaction fee.
• Get a prepaid card. Many credit card companies offer the option of opening a prepaid card that you can “reload” online. These cards offer the convenience of credit without the interest fees. Be sure to read offers carefully and understand the terms for prepaid cards. Be aware that many credit card companies charge the cardholder a flat fee each time they load the card. Also, compare annual fees when considering prepaid card offers.

Make the time to create a monthly budget in order to plug spending leaks now so that you don’t have to rely on credit cards to get by in the future.