Living without Credit Cards

If you believe the credit card commercials, you're not going to be able to have any fun in life unless you use their card. Well, if you've ever carried a balance on your credit cards, you know that paying interest is no fun at all. Tack on a late fee or over-the-limit fee and the good times are really over. Although credit cards can provide immediate gratification, they're more likely to cause long-term stress in your life. Thankfully, there are alternative strategies for living life without credit cards.

Break the Cycle

Many people view their credit limit as extra income, and as long as they're not "maxed out", they feel they're in pretty good shape. The problem with credit cards is that it's a perpetual cycle � the more you have to pay toward your credit cards, the less cash you have to pay for things, which leads to charging more things on credit cards. Until you break the cycle and stop charging, you won't be able to escape from your dependence on credit cards. Many people who are considering credit counseling are reluctant to close all their credit card accounts when told that most creditors require it before they will provide benefits such as reduced interest rates. Some common objections are:

• What if I have an Emergency?
• How will I pay for big-ticket items?
• How will I rent a car, hotel, or buy airline tickets?
• How can I pay for On-line purchases?

These are all valid questions and a credit card is convenient for all those purposes. But with a little bit of sacrifice and some sensible planning, they can all be accomplished without credit cards.

Establish an Emergency Fund

This may be where some sacrifice is required. Establishing an emergency fund can be difficult, especially when funds are already tight, but it's a necessity if you intend to stop your dependence on credit cards. Most experts agree that you should establish a fund that would allow you to pay for three to six month living expenses in case you were to have a medical emergency or lose your job. This may be daunting, so start out with a goal of one month, and add to it as you are able. You really need to examine your budget closely to look for opportunities to save. The article library on the CareOne website can help get you started with articles like:

• 101 Ways to Save One Dollar a Week
• 101 Ways to Trim Your Budget

Many people find it helpful to "pay yourself first" by having a small amount deducted from your paycheck into a separate savings account. As you learn to live on a lower amount you can gradually increase the amount deducted. If you don't see the money in the first place, you may not miss it as much!

Saving for Short or Long-Term Goals

If you are committed to living without credit cards, you'll need to save for things that you used to charge to your cards. You'll need a plan to save for these things. If you have some short-term goals like saving for a new outfit or bedspread � you may be able to get by with simple savings strategies since you are usually dealing with smaller amounts of money:

• Change Jar � empty your pockets of loose change or bills at the end of the day.
• Envelope System � After you've paid your fixed bills like housing, utilities, car payments, allot money for your other expenses, including items you are saving for in separate envelopes.
• Layaway � Ask the store to hold the item and you can drop money off, until you have paid for it.

If you are saving for longer-term goals like the holidays, a vacation, a car, or a down payment on a house, you should find a savings strategy that allows you to take advantage of earning interest:

• Holiday or vacation club � many banks offer interest bearing accounts that allow you to specifically save for these purposes.
• Savings Account � Most banks offer interest on savings accounts and you still have easy access to the money if necessary. You may want to check on-line banks, which sometimes pay more than double the interest of standard walk-in banks.
• Certificates of Deposit � These types of accounts usually pay a higher interest rate than a savings account, but require you to commit a certain amount of money for a specified term (6, 12, 24 months for example).

Alternatives to Credit Cards

Many people have concerns about how they are going to pay for goods and services that require a deposit like car rentals and hotel rooms. This is where it's a good idea to have an emergency fund established. Many car rental agencies and hotels will accept a "debit card" with the Visa or MasterCard logo, but they may place a hold on funds for several days to serve as a deposit. This could amount to several hundred dollars, so make sure that you have adequate funds on hand so you aren't surprised when you go to withdraw cash. Policies differ, so you should always check with the company ahead of time by either calling a manager, or searching for information on their website.

For making on-line purchases, you could also use a debit card, or you could open a PayPal account that many on-line merchants accept as payment. PayPal accounts can be linked directly to a bank account and in addition let you receive money if you plan on selling anything on-line.

Some people are so used to using credit cards that they overlook some of the good old-fashioned payment methods that are still available:

• Cash � Ask ahead and some merchants may even give you a 3-5% discount for paying cash, because they can avoid transaction fees associated with processing credit card payments.
• Checks � As long as you have acceptable identification, many merchants will accept checks. This also may qualify you for a cash discount.
• Pre-paid Cards � Similar to debit cards, pre-paid cards allow you to load a certain amount of money on to them, which becomes your "spending limit."

Living without credit cards may not be convenient, but unless your circumstances allow you to pay off the balance each month, you are probably better off without them. By not using credit cards, you don't waste money on interest charges. This allows you to keep more money in your pocket, which is like giving yourself a much-deserved raise!

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