Thursday, April 21, 2011

Life Without Credit Cards

It turns out that life without Credit Cards is not only possible, it is far easier.

At one time in this country, when I was a kid, having a Credit Card was a big deal - and not everyone had one.  In fact, probably the majority of folks didn't.

My how times have changed.  Today, even kids have credit cards, and you can use them to buy everything from a McDonald's hamburger to gasoline to your tax bill.

But do you need credit cards to live?  The credit industry certainly wants you to think so - and they bait the trap shown above with frequent flyer miles and cash-back bonuses.  And we all think we are the smartest mouse their is and we can take the cheese from the trap without it snapping shut on our heads.

But that rarely works out for the mouse.

As a result of the explosion in Credit Card use, we have an explosion of Credit Card debt - and many people, as much as 70% of card holders, carry a balance from month to month.  And for a lot of these people, the Credit Card debt is "intractable" - they can never, ever seem to pay it off, no matter how hard they try.

And of course, the TeeVee promotes the Credit Card endlessly - to the point where many of us can't imagine life without them.  It is not a matter of whether or not to have a credit card, but which one to have - a fancy Platinum card that announces to the world you have "made it"? Or a card that provides frequent flyer miles or rewards, so everyone will think you are financially astute and savvy?  Or perhaps that new Visa card that gets you preferred seating at concerts and the like, so you can sneer at those impoverished Discover people as you are admitted behind the velvet rope.

They use status to sell cards and people fall for it.  But any idiot can get a credit card, even a "status" card - and the card companies routinely send them out to people's pets, the deceased, or the like.  Having a pulse is not a requirement anymore for a Credit Card.

The ubiquitous card swipe machine has made the Credit Card indispensable, and until the invention of the debit card, it pretty much assured that if you didn't have a credit card, doing business was difficult.

And debit cards scare the crap out of Banks - which is why there is all this threatening talk about limiting how much you can purchase with them, and other nonsense.  But to be frank with you, if they outlawed Debit Cards (or neutered them) I would go back to carrying cash before I started charging on a Credit Card.

In the last year, we got rid of all but two Credit Cards. I have one card to charge Patent Office fees for clients, and another, small card, for use for traveling, etc.  What is interesting, now that we are debt-free is that we rarely use the second card anymore.  In fact, we invent reasons for using it.  It sits with a zero balance most of the time - the temptation to "play the float" never even occurs to us.

And I plan on cutting back on my business card as well, instead using cash to pay the Patent Office fees, via online account.  Why is this?  Well, when you run up fees on a Credit Card, you can end up with a pretty hefty balance in a short amount of time.  And if the client doesn't pay you, well you have a big balance and then have to pay interest on that balance.

So, it is better to get the money in advance from the client and then pay the fees and not screw around with Credit Cards.

A Credit Card is a debt instrument, plain and simple, and most people fail to realize that - thinking it is like some convenient plastic checking account.  But the first time you don't pay off the balance at the end of the month, you will realize how dangerous these things can be, as the high interest rates kick in, and suddenly, you are out possibly hundreds of dollars in interest fees - hundreds of dollars that could be in your pocket.

So, needless to say, the two cards we have are "no gimmicks, no fees" cards with low interest rates (7.55%) that don't give miles or cash back or other pitiful "rewards" that are pennies on the dollar.

Today, other than the Patent Fees, we use our debit cards for all purchases.  And the funny thing is, we don't miss the credit cards at all.  In fact, I wonder now why I felt I had to have them.  As it turns out, they were not a smart financial move to have, and they caused no end of grief.

And life without them, like life 20 years ago before they became so ubiquitous, is really not all that difficult or any additional hassle.

Perhaps in the next 5-10 years we will see the death of credit cards - or at least a diminution of their use, as more people move to a cash-basis and realize that hanging your ass over the ledge that is credit card debt is a dangerous stunt, as it can all go horribly wrong.  And airline miles are just not worth it.

When I was a kid, I recall that my Dad used to make a big deal about having a fat wallet full of credit cards - he thought that was a status thing - gas cards, store cards, credit cards - you-name-it.  Today, this seems almost laughable to me.  I am finding that a thinner wallet and a fatter bank account is far better.

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