I know, this may seem outside my normal milieu, but bear with me. I’d posted a grumpy note on farcebook a while back about getting credit card junk mail and was there a way to get rid of it? Which would have been fine, and I did get a helpful suggestion for reducing it (you can’t, it turns out, eliminate it). But I had added that I’ve never had a credit card, and don’t want one… and that brought every busybody out of the woodwork. How can you live in the modern era without one? They gasped. Oh, just pay it off every month, they advised. If you don’t feel like you can handle a credit card… they scolded.
Even leaving aside that I hadn’t asked for advice on getting/using a credit card, I have actually put a lot of time and thought into how I handle my finances. That research had confirmed my initial suspicions, in that you really don’t need a credit card to exist in modern society. It’s not that I don’t think I could handle one, or pay it off monthly (although I have also been advised to leave a small balance owing all the time, because that’s the way to do it, which just made me scratch my head). I run a household on a cash basis, have for a long time, and if we don’t have the money for it, we don’t buy it. I doubt we’d overspend if we were using plastic. What I was surprised about was how many assumptions based on outdated data that people were making, and that’s why I decided I’d step outside my usual topics here and address a few of them. These aren’t just my own opinions – you’ll find links that will take you to more data from reliable sources, I’m not asking you to take my word for it. You’ll see that I’m not alone in being suspicious of the motives of credit card companies in trying to build themselves up to be the be-all and end-all of American credit scores and fraud protection, too.
Myth #1: You have to have a credit card for fraud protection, especially online shopping.
No, you really don’t. Any good debit card (yes, you do need to ask questions when you choose a bank or account to make sure this is true of yours, you’ll note that a theme of this post is you can’t be lazy) has the same fraud protections as a credit card, these days. While it might not have been true once, there’s a reason my debit card has “MasterCard” on the front of it, to show that it’s treated the same as a credit card. Anecdotally, when my card was skimmed a few years back, and fraudulent withdrawals to the tune of several hundred dollars pulled out of my account, I was able to call the bank as soon as I noted it, and have the money back in my account by end of day. Now, it was inconvenient to be without my debit card for a few days while the new one arrived, but you’d be in the same situation if you were using a credit card. I do also now have more than one debit card accessible account, which costs me nothing, but it does limit my risks for things like travelling (which I’ll address later) and online shopping. I also use Paypal extensively for online purchases, and have used their fraud protection as well, especially handy when I’m buying on Ebay or Etsy, which can have dodgy sellers (and yes, a lot of honest ones, but you know what they say about bad apples). In other words, there are many ways to keep yourself safe, beginning with shopping responsibly – I don’t sign my card up for subscriptions, for instance, unless I really know and trust the source, like Netflix or my utilities. And even those, I’m quite aware, can be a pain when closing them out.
Myth #2: You need a credit card when travelling, for booking flights, hotels, and rental cars.
Not for any of these. I’ve traveled a lot the last few years, with my debit card and cash in hand. I tend to pre-purchase the hotels or rental cars, often using Priceline for deal-shopping (although it is not always the best deal, so shop around). This eliminates some of the concerns people usually have over hotels and flights, as you’re all paid up when you get to the point where you’re looking at tickets and checking in (airlines, by the way, don’t give a flip if you’re buying with credit or debit). Rental car companies do usually pull a separate amount as a deposit, yes. I plan ahead for this, and I have not seen it go to an outrageous amount. If you’re concerned about it, call ahead and check. Make sure you have a generous cushion in your account – as I said above, I use a separate account for travel expenses. I can transfer funds rapidly from one account to another, so even unexpected things can be covered. Also, you can get prepaid cards for some uses but be aware that hotels and rental cars won’t take those (most of the time).
Myth #3: You need a credit card to build your credit score
Maybe. Or maybe not. This, I’m not sure on through personal data, because I have no idea what my credit score is, and personally don’t care. I’d like for it to be zero. But, but… what about loans? comes the wail of disbelieving concern. What about them? I don’t do car loans – I buy my vehicles in cash. Yeah, that means you might start with a beater, so? I’m not picky about the looks of my vehicles, with savvy shopping you can avoid lemons, and then there’s this: save up and get a better car. The average American car payment is $500 a month. Save that up for a year, and you can buy a pretty nice used car. Do it for two years, once you have that pretty nice one, and you’ll have a sweet deal on a car that is past the major depreciation slope. If you pretend you’re paying a car payment, sock it into the bank, and then buy a car, you’re actually getting more car than if you had paid out that same amount to a financing company, because you aren’t paying interest on top of the purchase price.
Now that I’ve knocked over that part of the myth, let’s look at the big one. The Mortgage. I don’t plan to buy a house using cash. At least, not yet. Might be able to in the future if I live frugally and don’t get up to my a… lligators in debt. However, what I can do is seek out a mortgage company that will do manual underwriting. There are a lot of lazy companies out there that prefer to just take the shortcut and check a FICO score. But there are some that will put the effort into verifications of employment, deposit (for downpayment) and credit history as a whole picture. This is a much more secure loan picture for them, and for you, so it can result in a lower interest rate if you’ve put the effort into preparing yourself for that level of scrutiny.
Myth #4: You need a credit card for emergencies.
I’m going to do a little ladylike recoil here, and a big Oh Hell No! This, this is how you get in trouble. This is when the snake you’ve been playing with whips around and latches on. I get that emergencies happen. I’ve been broke, desperate, and willing to take any lifeline to get out of it. The problem is that this may look like a flotation device when you’re drowning, but later it’s going to turn into an anchor and drag you right back down. Instead, save up an emergency fund in a savings account, and don’t touch it unless it’s an emergency. The transmission going out, that’s an emergency. The kid wants to go on a Band Trip? That’s not an emergency. How much do you need in this fund? Well, that’s up to you. We’ve got about a month’s worth of expenses (bare minimum, keep the lights on and house going, kids fed) and will be building that up to at least three months worth in the future. What does that money do? It just sits there. Savings accounts are pitiful on interest return any more, but the money is there if we need it, without having to jump through hoops to get it out. On the other hand, it’s not too easy to tap into, either.
Truth: you spend more if you’re using a credit card
The studies I’ve seen show that consumers will spend up to 100% more if they are using plastic, which is why I jumped through the hoops as a vendor years ago to be able to take plastic at events. There’s a visceral reaction to spending cash, seeing that physical symbol go from your hand to theirs, that you don’t get when it’s all swipe tap and done. Don’t believe me? Try it some time.
Truth: The average American dies with over $61,000 in debt.
While the overall debt burden is only tangentially related to specific credit card debt, it is one piece of the puzzle picture, and not an insignificant one. I noted in my original post about the credit card offers that they had started coming once I’d graduated from college, and it’s part of the marketing scheme that is going so well for the credit card companies. Get them early, get them in deep, feed them misinformation about how much they need the cards, and they’ll never get away from them. For every one of you that insists you pay off your balance every month, and treat your CC like a debit card, there are a hundred who don’t. Even Equifax, one of the big credit reporting companies, urges consumers to work on becoming debt free and paying them off.
I realize my attitude toward debt and credit cards isn’t normal, but I’m fine with being weird, as my regular readers know very well. I also have a history of having been left out of the financial decisions in a marriage, having my identity used fraudulently, and having been poorer than dirt. I don’t want to ever get back there, and I’m blessed with a frugal husband who shares my values and works in tandem with me toward the goals of being debt-free and living comfortably within our incomes. I’m not going to run around condemning people for having credit cards, unlike some people who seem to take my reluctance to play that risky game as a personal affront. But I do think that everyone ought to approach their finances with eyes wide open, and that means getting some of the mythology surrounding it cleared away.