While I’m not a complete anti-credit card fanatic, I absolutely think there’s a time and a place to just. stop. using. credit cards.
How do you know if you’re at that place? Simple.
You’re carrying a balance
If you’re carrying a balance on your credit card and it’s at anything greater than 0% interest, you’ve got a problem. (You may also still have a problem even if you carry a balance on a credit card at 0% interest, but let’s leave that aside for today.)
The point is, if you’re not paying your credit cards before they’re due and in full every single month — and if you don’t have the cash sitting in your account to do so right this very second even if they’re not due yet — you shouldn’t be using credit cards.
So get a few things in order, and then: be brave, and cut them up.
But what if…
If the thought of cutting up your credit cards filled you with fear or anxiety, that’s a sign that you really should consider cutting them up. (While focusing on getting your financial life in order.)
Common what-if’s go like this:
- But what if there’s an emergency?
- What if I need to rent a car, or I don’t like carrying cash?
- Won’t that hurt my credit score?
So, let’s go through them real quick.
What if there’s an emergency?
Know what you need in an emergency? Money, and insurance. Not debt. Debt is not a safety net.
So if you don’t have health and car insurance, make getting that a priority. And if you don’t have an emergency fund, start socking away some money for it today. You decide how much you’re comfortable with, but it should be at least large enough to cover common things that you would otherwise stick on a credit card. And a whole lot bigger if you would really be in trouble if you lost your job.
Not sure where you’re going to get the money for an emergency fund? Check out this strategy.
What if I need to rent a car, or I don’t like carrying cash?
If you don’t like carrying cash, you could use a debit card. They swipe just like a credit card, so long as you’ve got the money in your account. (Or you can enter your PIN.) There are some other things to be aware of regarding debit cards — mainly that you’d better call right away if your card is lost or stolen. I personally don’t like debit cards, but I like being in debt even less. And that’s what it took for me to stop borrowing.
And yes, you can rent cars (and hotel rooms) with a debit card. Just be sure it has a Visa or Mastercard logo on it, and call the company ahead of time to make sure you don’t have to bring anything special. You’ll need to have enough cash in the account to cover the hold they’ll put on your card, and the hold can be on there for up to a week or two. That hold is in addition to the amount they’ll charge for the car rental or hotel room. (Don’t have enough money for that? Maybe reconsider or postpone the trip.)
If you’re a frequent car renter for some reason (maybe because of your job), or you want the benefits that sometimes come with cards for car rentals, consider keeping one credit card that you use only for that purpose. (And then pay in full.) If you want rewards, consider how rewarding being debt free will be :)
Won’t that hurt my credit score?
No, cutting up your credit cards won’t hurt your credit score. How would the credit reporting agencies even know that you’ve done so?
If you stop using all types of revolving debt (or all types of debt period), that will eventually reduce your score. But paying down your debt instead of adding to it will probably actually help your credit score. (Also, life is not about our scores.)
Why cutting the cards can help
For me, cutting up my credit cards was like saying, “That’s it. I’m really going to do this thing.” It was like cutting those apron strings — apron strings that were more like chains holding me down. I realized that I could handle my money without them. I could get creative and figure out other ways to get the things I wanted and needed. And I did.
Make no mistake, you’ll probably be tested about 5 seconds (give or take) after you cut up your cards. But you can get through it. (Especially if you’ve built up an emergency fund, and gotten a budget going.)
Can you ever go back?
Cutting up the cards doesn’t mean you can never ever use them again. Once you get out of debt and are in a solid financial position, you might feel ok using them again someday. Maybe. You know yourself best.
But if your behavior ever says otherwise (meaning you start to carry a balance again, even just “temporarily” or due to a mistake or an emergency) cutting them for good is probably the way to go. I think of my credit cards as being like a dangerous power tool. One I’ve got to keep a close eye on, and one that could hurt me. And I think that’s the right attitude.