More than 70% of the U.S population owns at least one credit card and the average user has three credit cards in their wallet. Given the statistics, it is fair to assume that one-half of the nation is indebted. Americans are adhered to the credit lifestyle, which is addictive to say the least. The shiny pieces of plastic that you can swipe anywhere at any time are the definition of convenience. Credit provides a sense of financial security and power that is easy to misuse. The so-called ‘rewards’ offered by credit issuers are in fact nothing but a sham. The money we believe we saved through some ‘cash back’ or ‘earn points’ campaign is only a tiny fraction of what we pay in interests.
The Truth about Credit Cards
Credit cards urge us to spend money we don’t have and buy things we don’t need. When the paycheck arrives and it’s time to pay the credit card bill, we fail to realize the irony of the situation. Even with the lowest interest rates, we are paying about 15% more than what a purchase is actually worth. At first glance, a $2000 price tag looks like too much, but the minimum installment plan to pay it off over a long time is viewed as ‘doable’. By the time a user finishes this ‘convenient installment plan’, they have in fact paid almost $6000 (three fold of what they originally owed). The cycle repeats itself, we miss payments, credit score drops, interest rates inflate, and debt multiplies.
A Substitute for Credit Cards
Once you accept that your debt has become unmanageable, it might seem like the end of the world. You have no choice but to give up your credit privileges. Many people who splurge on credit eventually go broke and file for Chapter 7 bankruptcy because debt collectors are on their tail. You may be surprised to learn that debit cards work just as fine as credit cards. The difference is that debit cards hold money that belongs to you, hence you do not have to pay an interest rate on your purchases. People without credit cards do not have to carry loads of cash everywhere. Your debit card can get buy the same things as a credit card, without the liabilities attached to a loan.
Managing Life without Credit
Managing day to day expenses is initially challenging if you largely relied on credit. You may have to cut down expenses and establish a budget to catch up. You will no longer be able to borrow money, so certain items on your shopping list shall have to wait. If your credit card was your designated emergency fund, then you will need to set up a savings account to replace it. You may not qualify for any loan without credit and that is probably for the best until you become financially stable. You will gradually learn to survive on what you can afford. If you plan to own a car or house, you may have to do it the old-fashioned way, i.e. save up enough money to pay in full.
Buying a house in one down payment is much cheaper, as you don’t have to pay mortgage installments that are subject to an interest rate; not to mention, you gain complete equity within a week. You are not affected by recession or inflation in the housing market either. When you get accustomed to rely on your personal income alone, you don’t have to deal with notorious creditor and crippling debt.
John Adams is a lifestyle blogger who addresses emotional and financial challenges. He helps readers solve their problems the smart way, rather than the hard way. He aims to reach out to individuals who are unaware of their legal rights, and make the world a better place.