Monday, October 20, 2014

Money Monday: Why we don't use credit cards

5 years ago, my husband and I sat down on our couch, took out a pair of scissors and cut up all of our credit cards.
Then, we took a look at our accounts, totaled all of our extra cash, and left 3K aside as an emergency fund. With just a few thousand to use, we decided to pay off as much of our credit card debt as we could that day.  Once each credit card was paid in full, we called the bank and cancelled our card. One by one, the credit card debts were paid, cancelled, and we vowed that we would never be in credit card debt again.
One part of the process that surprised us was how hard to was to actually close each account. The banks tried to offer us perks (higher credit limits, an upgraded card, concierge services, ect.) and once we declined, we were put through to a supervisor. Then, the supervisor tried to sweet talk us with the perks again. When that didn’t work, they began the scare tactics, and tried to bully us into keeping our cards. It took persistence, determination, and focus for us to remain on track.
But, we did it. We stuck to our guns and kept pushing towards our goal.
I remember after we cancelled our last card being scared. I never realized how tied I was to that piece of plastic. That card was our emergency fund. It was the safety net. Again, we pushed through those feelings and stuck with our plan.
Why did we give up credit cards?
First, we found that when we used credit cards, we spent more money.  This may not be the case for everyone, but when we bought on plastic, it was so much easier to buy more items.
Today, we utilize the envelope system and use cash for food, gas, dry cleaning, pet supplies, home goods (cleaning, HBA, make up ect), and entertainment. Once the money is gone, its gone and we don’t get to spend any more that month. Using cash is what lead me to becoming a couponer because when I bought a cart of groceries with my credit card, I didn’t think about price as much. But, when I sit in the store parking lot and count the cash in my envelope, I have no choice but to stay on budget. Sometimes we have to sacrifice and not buy things we want this week, but I can normally find a coupon for it, so we usually are able to get that item in the next few weeks with a discount.
Second, we read the fine print. The contracts with the credit card companies favor the banks, not the consumer. CC companies advertise a fixed rate, but in our agreement, they were able to increase the interest rate just by giving a two week notice.  
Third, we didn’t trust the credit card companies.  Credit card companies have spent hundreds of thousands of dollars to study the consumer. They have sociologist, scientist, psychologist that study us and our behaviors. They study how we act and think in order to get us to spend more money. They try to sell us on a life that quite frankly we could not afford on our own, but with their credit card we could achieve.
Finally, we wanted to be self-reliant and free. We wanted to call the shots in our own financial life, and didn’t want to be tied to an institution that tracked our habits and used that information in ways that were not helpful, but harmful.
Are we missing out?
Sure, we don’t get frequent flyer miles, or discounts at the store, but in most cases, I can find a coupon code online and get those savings anyway.
But, what we don’t get in rewards, we more than make up for in piece of mind. We never worry about what the mail when it comes in because we know there is no bill out there with our name on it that we forgot about.
In the end, living without credit cards is not for everyone, but for us, it works. The beauty of personal finance is that its personal. If you do something that works for you, that does not for me, that’s great! I don’t think one decision is better than the other, they are just different. As long as you have a plan and working that plan, then good for you!

Tell me: Do you use credit cards? If so, how many do you have?  If not, when did you get rid of yours? Why did you get rid of them?


Brooke said...

we use credit cards, but definitely pay it off at the end of every month. addicted to the promise of the reward (gas credit in our case) i suppose.

alyssa said...

I used to be in credit card debt, and since I got out, I only use cards that benefit me (with rewards miles or cash or discounts at certain stores and I pay them off monthly). I have the opposite problem with spending more freely in cash then with plastic so it works for me. You do make some really great arguments for not using credit cards. Thanks for sharing!

Kristen said...

I am worse with cash than I am cards, so we do use cards for everyday and we get rewards (skymiles) which I like. Unfortunately, i also have a credit card or 2 that is debt and not reward in any way shape or form and it's my goal to pay them all off.

Anne @ Money Propeller said...

Nice work paying off your cards. I am surprised you had that much trouble cancelling them. That said, if you had been paying the minimum payments, you were good customers for them that they didn't want to lose!
I rarely ever use cash, I'm an all-credit kind of person, but the card is a transaction method, not a form of credit, for me.

Tracy said...

Very impressive getting yourself of out credit card debt like that! We use credit cards for everything but pay them off every month. I'm worse with cash than I am with a card, plus we like getting rewards for spending money we would have spent either way.

That Frugal Couple said...

I can imagine what a life-changing experience it was to just sit down and literally chop up all the cards:) My parents always taught us not to borrow anything, and therefore I stuck with a debit card for a long time. The stupid thing is that you cannot build a credit history in the US without borrowing something, or getting a credit card. That's why I had to gave in and got one. The thing is I still treat it like a debit card by paying it off asap and only spend what I actually have. Good post though!