Anytime my husband or I tells someone that the only debt we have is the mortgage, we usually end up receiving some pretty strange looks. We even sometimes hear things like “you need a credit card for emergencies” or “credit cards aren’t debt” and even, “I don’t understand how you afford to live without credit cards since you’re living on one income”.
Truth be told, when we first started our debt-free journey I was concerned that we wouldn’t be able to make it without credit cards. I mean we’re told from the time we’re 16 years old that we must have a credit card to build up credit. So, naturally credit cards are comfortable to us. We don’t stress over carrying a balance on our cards because well, everyone does it so why should we worry if we have a balance or not.
And honestly, we used to be one of those folks – we only stressed about the balance on our credit cards when they were getting close to the credit limit. We didn’t see credit cards as debt – we saw them as a way to earn “free money” in the form of cash back points and skymiles.
But once we jumped onboard the debt-free crazy train we realized that the balance on those credit cards was in fact debt. We owed those companies that money and that cash back we had “earned” just ended up being applied to the credit card balance.
We had to completely change our way of thinking when it came to credit cards in order to realize our debt-free dreams. We started asking ourselves why we were spending so much money on our credit cards when we could have honestly just paid cash for these things.
Were we using our credit cards merely to earn the bonus points? Were we using them to keep our cash – in case of an emergency? Were we using our credit cards for the simple reason that we didn’t know anything different?
Yes. Yes to all of the above.
We were using our credit cards because we thought it was great being able to earn cashback on purchases and thought that the only way to be able to do that was with a credit card. That was until I discovered Ebates – a cashback site where you can earn cashback on your online purchases without having to go through a credit card. (In fact, if I need to shop at Walmart or Target, I usually go online to Ebates, select Walmart.com, make my purchases and then select “in store pickup”, pay with my debit card and then head into Walmart to grab my stuff. That way I’ve earned my cashback on items I need right now without having to reach for a credit card.)
We were also using our credit cards as a way to “keep” our cash. So, let’s say we needed a new catalytic converter we would use a credit card instead of paying cash because our cash was in limited supply. But honestly, we have an auto fund where our car related expenses come from so attempting to hold onto that cash just ended up costing us more money in interest.
And, we didn’t know any different. I mean our parents use credit cards so that’s all that we knew. We literally didn’t know that you could live a great life without credit. We thought that we had to have credit cards in order to be able to buy a car, when in fact; if you just pay cash for your car you don’t have to worry about your credit score.
Seriously, when we bought my Sequoia two years ago they didn’t ask to run our credit or anything! All I had to do, was write the check and it was a super simple transaction – no discussing interest, payments, down payments, total amounts owed – nothing. The math was super simple – the price of the car, plus the tax and title, equals the amount I had to write the check for.
I know that may seem silly, but if the only way you’ve ever purchased a car was with a loan, it’s a strange experience paying cash for one. It’s the same thing with purchasing a home. I can remember asking our mortgage broker all these questions because I didn’t understand half of the math involved in purchasing our home and his exact words were “Jessi, don’t stress yourself over the math because it doesn’t make sense and there’s no way that I can explain it to you to make sense. It’s just what is required of an FHA loan.”
Seriously, our broker (who was great by the way) even told me that he didn’t understand the math. Oh and in case you’re new here – I’m an accountant, I like numbers and I like knowing how much something costs. It was crazy, but you know…I didn’t question him anymore because the main thing I was concerned with was the payment – how much was this going to cost us every month.
That’s where the debt-free life differs. Instead of focusing on the payment amount, you start focusing on the actual cost of something because instead of relying on credit to make your purchase, you’re relying on the cash you’ve got in your hand.
So, if you’re on the debt-free journey and struggling with the fear of leaving the “comfort” of debt behind, I encourage you to step out in fear anyway. The grass really is greener over here. 🙂
Are you on the debt-free journey? If so, what has been the hardest part for you to “come to terms with”?
I think people would be horrified if they knew HOW MUCH they were actually paying for something in the long run. You are SO RIGHT about people just wanting to know what it will cost per month, and then they make the purchase if they can swing the monthly payment. Even if people could not always save up and pay cash, I bet they would be a little more hesitant to finance something huge if they did the math and realized how much money (interest) was being flushed down the toilet. Thanks for another thoughtful post, Jessi! 🙂
Thank you so much Liz! 🙂
We have never used credit cards – in our entire 17.5 years of marriage, nor in the few years we were adults before we were married. But that certainly doesn’t mean we’re debt free. ?
In the beginning, we simply had enough cash for all of our needs & most of our wants. And when we didn’t, well, we didn’t qualify for credit cards for sure.
We are working toward paying off some debt this year – I enjoy the motivation I get from your blog! xo
That is incredible that y’all have never used credit cards! Kudos to y’all! 🙂 🙂 🙂
Yup. Sorry. I don’t want to finance my groceries at 14.99 percent.
Love that Lydia! I used to finance our groceries and paying cash is so much easier!
Wow, this is a good kick in the pants for me. And I just signed up for Ebates a few days ago — I love your tip about shopping at Walmart! Definitely gonna do that!! I wonder if it’s possible to cancel the credit card accounts while you still have a balance, just to keep yourself from adding more to them? Or will they then expect you to pay the thing off right away?
You should be able to cancel with a balance still on it. We were able to do that with all our cards. 🙂
Funny, but I had the opposite experience a few years ago…I was told for every single card that each card could not be canceled until the balance was paid in full. I wonder if times have changed? Either way, I admire anyone who even wants/plans to cancel their cards, whether they have to wait or not. But now I’m curious, lol 🙂
I am working on paying off debt, including a lot of credit card debt (consolidated into a home equity loan about a year ago). However, I’m not against credit cards for our family, just accruing more debt on them. We use them and pay them off, and enjoy the rewards. But if we started accruing more debt, I’d have to cut that cord.
I am a big fan of Dave Ramsey and until I started following him didn’t realize how MUCH I rely on a credit card….I feel a lot more responsible without one:)
That was me too Patty! I relied on my credit card without even realizing it. I used to think that having a credit card made me a grown up but now I realize being able to pay cash for something is way more responsible! 🙂
We don’t use credit cards anymore either. It was a problem when we got too close to credit limits that we realized that we didn’t really want to play the game of earning rewards at the cost of something not being fully paid for from the start!
We were on BS2 but then had to go back to rebuild our baby emergency fund…and we are STILL trying! Ugh. We don’t use the credit cards anymore but I have to break my habit of using the debit card. I get so stressed about carrying cash everywhere. I feel like I’m not going to have the right amount or forget that I need to get something else and not have enough cash.
Heather, we ran into the SAME EXACT ISSUE! We are on BS2, and will be for a while (thanks student loans!). We were coming up with the budget and doing amazing…but then we’d swipe the debit card and fall back into that habit and our budget would be all sorts of messed up.
We finally took the time to do the cash envelope system. It took a few months to figure out what envelopes we needed and how much in each, but it really worked!!
This is a really challenging post for the UK as not having a credit card here can affect your credit score as you are seen as unreliable ! Great post to think about, especially all the reasons why you might be using it to avoid looking at the real financial state you are in. We do have one for the benefits but pay it off in full every month, might be interesting to try a month without using it !
I think about credit cards that way also, to me, the credit card limit does not equal to the amount of cash in my hands. The cc limit equals to the amount of debt I can possibly have! I only use my cc if I know I have the cash in the bank to pay it off. It is too easy to rely on cards!
It is possible to have a credit card and use it responsibly. My husband’s credit card comes with free travel insurance, so we always use it when we book a trip, saving ourselves a few hundred dollars because we don’t have to purchase travel insurance separately. I salary package on to my credit card – basically a portion of my income is taken out of my pay check, and I do not pay taxes on it. There are limited things you can salary package on to, all of them debt-related, and since we don’t have a mortgage or car loans, a credit card is ‘it’. With tax savings it means that in effect, the government pays for about a third of anything I put on the credit card. Generally, the credit card owes me money; I let it build and then use it to pay off large bills like my car registration.
For people who are very low-income, who might otherwise turn to payday lenders to make ends meet, I think credit cards are a very important part of their financial story. Credit cards have a much lower interest rate and the companies are much more reasonable to work with than payday lenders. Yes, in an ideal world, people wouldn’t rely on debt, full-stop; but the reality is that many people do not make enough money to cover their expenses, even with careful budgeting, and a credit card is the lesser evil. (Personally I’d prefer to see the US introduce a minimum wage that was a living wage; but let’s face it, that’s not likely to happen.)
Two years ago my husband had a stroke and we went into a financial spiral as he has not been able to go back to work. Neither one of us had ever learned about budgeting or what an emergency fund was. In the last 6 months I have been learning how to budget. Our credit card amounts were killing us and I just got a consolidation loan to pay everything off this month. I am terrified about cancelling our credit cards because we have no emergency fund and what if something happens. Consolidating everything will allow us to start the emergency fund. It also gives us a clear date of having everything paid off. Should we keep one that we don’t carry with us until we get the emergency fun built up?
Thank you for Jessi for sharing so much. I learned all of my budgeting from your sight and/or links from your site. You are blessing.
I’m sending prayers up for husband Candy! That is frightening but I’m so happy he survived! For me personally, credit cards are too tempting for me and I know had I left mine open I would have an “emergency” to put on it and would have ended up losing control. If it’ll give you peace of mind maybe just freeze the card in a block of ice in the back of your freezer so it’s out of sight and difficult to touch?
I feel like I say this every time I comment, but your posts are so real and refreshing! I recently re-read your post on getting our of financial hell to help inspire me for the new year and keep me on track. Your blog is undoubtedly helping so many of us, you’re awesome!
Awe, thank you so much Savannah for your sweet encouragement and kindness! 🙂
The thing I had to come to grips with is that people WILL make fun of me. People WILL think I’m crazy for not getting the “free air miles.” And no matter how I try to explain myself, some will not understand and just roll their eyes. It’s a fact that people spend 12-18% more when plastic is used instead of cash. But apparently I’m still silly for not having a credit card… and for closing the accounts *gasp* because I’ll lower my credit score! (ps- why do I need a credit score? Oh right, so I can borrow money)
I am in the middle of a bankruptcy, which is the last thing I wanted to do. But even working two jobs I never had enough money. I am filing chapter 13 which means I still pay those I owe money to but a monthly payment I can afford.
As part of the requirements for filing you must take two credit counseling courses, a budgeting class and my attorneys office will be my guide for the next two years to help me stay on track.
I have started the envelope cash system along with building my emergency fund. My question is “when will the it’s burning a hole feeling” go away? For the first time in my adult life I fnally nally seeing how a budget works. A job for each dollar.
I love reading this blog and everyone’s comments.
Sending prayers your way Melissa!
That burning hole feeling, in my opinion never goes completely away. The difference for me and my husband has been that we can recognize that feeling and make a choice on how we respond. We’re human so we still have wants and there’s times when self-control is lacking so that “burning hole feeling” comes back. But like I said, it’s easier to now see what’s happening – us losing self-control – and to reign us back in before we become completely out of control. If that makes sense.