You’ve probably heard lots of people’s opinions about credit cards by now. Some American consumers swear by them, touting them as the secret to building credit and paying for purchases in installments. Others view credit cards as the gateway to debt—eschewing them for old-fashioned cash spending or preferring to use a debit card that’s linked directly to their bank account.
Some people support buying on credit while others are suspicious of it. According to The Motley Fool, about 29 percent of Americans don’t have any credit cards. But those U.S. buyers who do have at least one card actually carry 3.7 different credit cards on average. So, people tend to either have zero cards, or they have a handful.
At the end of the day, you can make valid arguments for and against buying on credit. Still trying to decide what works for you? Here are some of the pros and cons of living without a credit card.
Pro: You’ll Be Less Tempted to Overspend
To put it frankly, you can’t spend what you don’t have. Credit cards provide access to money you don’t yet have; it’s like writing a promise for the future. Choosing to forego card carrying can help you resist temptation because it’s no longer an option to splurge above your means.
If you’re someone who’s already tempted by the siren call of shiny new “toys”, then it may be best to avoid opening lines of credit. Or, if you do, leave them at home whenever you’re entering a situation in which you know you’ll be motivated to buy non-essentials.
Many people who later attempt to settle their substantial debts for less through programs like Freedom Debt Relief first ended up falling behind on credit card payments for one reason or another. The lesson here? Overspending on credit can quickly spiral out of control, forcing cardholders to rack up debt month over month. While debt isn’t the end of the world, and there are solutions out there, it’s best to avoid kick-starting this cycle in the first place if possible. For some people, this means opening no or few credit cards, keeping their limit low.
Con: Building Credit Is Tougher Without Cards
Using credit responsibility over the long haul will build your credit score—but only if you pay at least the minimum amount due, on time, month after month. A solid credit history will demonstrate to potential lenders that you’re financially reliable. This, in turn, increases the likelihood you’ll get approved for loans, housing applications, etc.
Unfortunately, a spotty credit history will only hurt your score. Make sure if you’re using credit cards with the justification of building your credit rating, you’re making timely payments and avoiding debt that’ll hurt you later.
Pro: No Credit Cards, No High Interest Rates
Credit cards carry a notoriously high interest rate. According to Wallethub, the average interest rate is 19.24 percent for new offers and 14.14 percent on existing accounts. While the actual Annual Percentage Rate (APR) you’ll pay depends on your credit score, you can expect higher-than-average interest rates for credit cards in general.
As always, the best way to avoid paying steep interest is to pay your balance in full each month.
Con: Credit Cards Do Help with Big-Ticket Purchases
Credit cards help people buy things they wouldn’t be able to pay for in cash. The ability to pay off big-ticket items in monthly installments can certainly come in handy.
Pro: More Motivation to Create an Emergency Fund
Unfortunately, many Americans use credit as their only “safety net” against sudden expenses like vehicle malfunctions, medical bills, urgent travel, etc. It’s dangerous to allow credit to take the place of an emergency fund containing three to six months’ worth of expenses. So, going without credit cards is a good motivator to actually beef up your financial security by contributing to an emergency fund each payday.
Con: Might Miss Out on Rewards
Rewards are the other justification people use to open cards: airline miles, cash-back perks, discounts at certain establishments, etc. Just make sure the rewards you’re getting aren’t outweighed by the interest you’re paying or the debt you’re accumulating.
Life without credit cards is entirely possible, but you’ll have to consider the pros and cons of doing so before deciding what’s right for you.
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