Why I Don't Own a Credit Card
I don't own a credit card and I haven't since 2009.
I know, I'm a total weirdo and most people can't understand how I can function as a human on planet Earth without credit cards. After all, 83% of people aged 30 - 49 own a credit card and over half the households in the U.S. carry credit card debt so I must be missing out, right?
Credit cards have become a way of life for the majority of Americans. We swipe and pay later and we love our points, miles and cash back rewards.
But I've decided to opt out of credit cards. And I have my reasons. I'm not saying anyone is "wrong" for using credit cards or that credit cards will ruin your life (although they sometimes do ruin lives) but I am suggesting that it may be worth re-examining why you use credit cards and deciding for yourself if they are really worth it.
Here are my reasons for not using credit cards.
It simplifies my life
I have a bias toward clean, simple systems. The more complicated a system is, harder it is to maintain. This also translates to budgeting (another subject I'm passionate about).
If you run your budget based on income and spending from your checking account and you only spend "real" money (i.e. cash from your account - not credit) then you have a very clean and easy way to budget. You don't have to worry about how to categorize your credit card payments vs. things you buy on your credit card.
And yes, I know that some budgeting software handles this. My favorite one even handles it pretty well.
However, you've added additional layers of complexity into your cash flow system, especially when you have multiple credit cards.
I find that I get incredible peace of mind by not having to worry about a credit card. I swipe my debit card for everything and all expenses are posted to my budget against my operating account. Simple and clean.
Credit cards give you the illusion of having more money than you do
No matter how much you intellectually understand how credit cards work and how much money you literally have in the bank, there's a psychological trick that credit cards play on you.
When you have a generous $10,000 credit limit staring at you on a credit card, it feels like you have an extra $10,000 available to spend. But you don't. It's not real money.
A side effect of this illusion is that it can cause people to under-estimate their need for short-term savings (including an emergency fund). When you have no credit limit and you only use real money, you are motivated to save up enough to feel secure because you don't have a "safety net" of credit. But having a credit limit tends to relax your (healthy) impulse to save more which can cause you to under-prioritize your savings plan which can cause problems later and cause you to go into debt when you encounter unexpected expenses.
People tend to spend more when they use credit cards and chase points
The number one pushback I get on credit cards is points. Just about everyone I talk to uses points as the reason they use them and most people are pretty adamant that they are coming out ahead.
But are they?
There is a ton of data available proving that people tend to spend more when they use a credit card.
"When someone buys an item with cash, they immediately know how much that item cost, which can be painful. However, when someone pays with a credit card, there is a time period between when they purchase the item and when they have to pay for it, which makes the cost seem less important, according to Psychology Today."
According to the same research cited above, people tend to spend 100% more when using a credit card versus spending with cash.
Credit card companies know this and lean into this even more by gamifying the system with points (including cash back and miles). They know that if they make you feel like you're getting a deal then you are likely to feel even less friction when using your credit cards.
It's the same reason the major retailers still use coupons and special offers. It gets us to buy more stuff.
Think about it for a minute. Would credit card companies push points so hard if they didn't make money on it?
Now, a common argument to this point is "Well, I track my spending very carefully. This doesn't apply to me." Maybe. But think about other areas in life here we lie to ourselves. Those who are into fitness often use all sorts of "assists" to help them stay motivated. Joining group classes. Doing online classes. Working with a personal trainer. Using apps. These are all acknowledgements that sometimes self-discipline is not enough. We benefit from "life hacks" or other guardrails that keep us focused on the behavior we want. It would be easy to say "Well, I don't need help staying focused on my fitness goals... I have self-discipline!" But in reality, most of us are perfectly willing to admit that behavioral assists are really helpful in overcome the gaps we can have in motivation.
The same goes for food in the fridge. If we buy a bunch of junk food and put it in the front, then we're pretty likely to each a bunch of junk food. But if we stock the fridge with healthier choices, we're probably going to eat a little healthier simply due to convenience. Especially if we put that food in the front where it's more accessible. Not many people would argue with this. It's human nature.
There are plenty of other examples. But for some reason when it comes to credit cards, many people give themselves an unrealistically high score on self-discipline.
Credit card points are exploitation
So let's say you are one of the people who truly are responsible with credit cards. You pay them off each month and you really do get points while controlling your spending. It's hard to argue with this unless you look at it from another perspective which was recently pointed out to me by another advisor: the system of credit card points relies on exploiting people who are harmed by it.
You may be getting rewards by using your credit card responsibly, but the reason those programs exist is because other people don’t and the banks are exploiting and making money on those people.
I have plenty of other reasons for not using credit cards but when I think about how credit card companies make money by taking advantage of people, I feel even less inclined to participate in this system.
The cons outweigh the pros
Are there are pros to using credit cards? Sure, I have to admit that the primary advantage that credit cards have over debit card in my eyes is the fast that they can shield your bank account against fraud. While the same fraud protections exist for debit cards as credit cards and you likely will not be liable for it, it's still a fact that the money is temporarily gone from your checking account.
Luckily there are ways to minimize this. Look for banks that have good online tools so you can freeze your debit card through an app. Also, make sure they are pro-active about contacting you with suspected fraud alerts. Additionally, by using a siloed bank account system, you can limit your exposure to any one card.
Another key is to be vigilant and fast when reporting debit card fraud. If you report fraud promptly, you are more likely to be absolved of liability.
Ultimately, you may temporarily be out a little bit of money if you are a victim of debit card fraud, but it's generally not catastrophic if you manage your accounts well. To me, this one disadvantage is pretty easily dealt with and does not outweigh the downsides.
Also, some car rental places still make life more difficult for you if you use a debit card but that's on them, not a problem with debit cards.
So if you want to continue to use credit cards, we can totally still be friends. I find that eliminating credit cards from my life has been a great feeling. Besides, I enjoy being a little bit weird.