Should You Ditch Your Credit Cards Entirely?

More and more consumers are opting to ditch their credit cards in an effort to shrink their personal debt and rein in their spending habits.  Though most financial experts agree that consumers don’t need an excessive number of credit cards, they advise against going without the plastic altogether and recommend keeping at least one on hand for emergencies.

Before deciding whether or not to give up on your credit (at least for now), consider this:

Credit cards aren’t just handy for spur-of-the-moment accessory-buying sprees; they can actually help to pay for many of the necessities of life—clothing (though not every purse on the rack or every pair of shoes that catches your eye), food, and, yes, shelter.  Plenty of folks with healthy credit scores use their plastic to make mortgage payments and major purchases for their home, such as furniture or carpeting.  Credit cards are also helpful when you just don’t have the cash on hand, but do need to buy a few things (again, perhaps not every new gadget in the electronics department).  Showing that you are actively working to pay off the debt you’ve accumulated will make you very attractive in the eyes of the bank the next time you need a loan for college, a mortgage, or a car.  If you’re over 21, keeping a positive credit score is just a smart thing to do, as securing an apartment or house, and in some cases, a job, could hinge on this.

Credit vs. Debit

“Debit or credit?” We’re asked this so often, we barely notice anymore.  But the bigger and more important question would be—“Do you understand the differences between them?”

Many banks issue check cards that serves many purposes—it can be used as a credit card, a debit card, or an ATM card.  One of the biggest fundamental differences is that a debit card takes the money out of a user’s account directly at the time of the purchase, rather than charging the amount and paying off the balance later.  Ideally, using a debit card only would make it easier to track expenses and keep a tighter hold on spending; once the money’s gone, the Insufficient Fund notices start arriving and the overdraft fees are applied.  These notices would arrive well before the monthly bank statement, so it wouldn’t exactly be a surprise to see it in the mailbox.  A common complaint about debit cards is that some banks charge user fees for each transaction; this amount can quickly add up depending on how often the card is used.  Also, obviously a debit card could not be used in place of a traditional credit card, so if you are just starting out and trying to build up your credit, don’t rely solely on a debit card.

Credit cards are still used mostly for large purchases, such as a home, furniture, car, or a college tuition payment, and many consumers opt to carry both a debit and credit card so they can have their choice of payment methods.

Paper or Plastic?

In our age of credit-happy consumerism, using cash for buying items seemed to be going the way of the dinosaur; that is, until the economic crises of 2008 and 2009 forced more than a few consumers to take a tough look at their spending habits.  Pretty soon, cold hard cash wasn’t so out of fashion after all.

An easy solution to controlling spending is to rely more on cash for making purchases; an empty wallet is an even quicker indicator of low funds than a bank notice for a debit card.  Most cost-conscious consumers work hard to effectively keep a balance of all three methods: credit cards for large or emergency purchases; debit cards for ordinary shopping trips, and cash for quick purchases like last-minute grocery items.

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Tagged as: credit cards, debt