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Do I Need a Credit Card?

Some things in life just seem to go together: bread and butter, fall and pumpkin spice . . . everything, wallets and credit cards. All of those make sense—except for wallets and credit cards. Have you ever actually stopped and asked yourself, “Do I need a credit card?” If not, today’s the day.

Maybe your parents gave you a credit card just for emergencies when you were in high school. Or maybe you snagged one in college because some well-meaning person told you that you need a credit card to build up your credit. In either case, it’s time to shine a light on the hot topic of credit cards. Do you really need one?

If you don’t own a credit card, finish reading this article before you sign the dotted line. And if you do own one . . . maybe you’ll find out that having a credit card isn’t really necessary after all.

4 Reasons Why People Use Credit Cards

There are a million reasons under the sun for why people think they need a credit card in their wallet. Our State of Personal Finance study found that 86% of Americans have a credit card. But on the flip side, 56% of Americans in debt wish they had been better educated before taking that debt on.

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So, with that in mind, why is it so tempting to keep these shiny plastic cards around? Here are some benefits (cough, excuses) people make for keeping a credit card or two:

1. Identity Theft

In the words of Dwight Schrute, “Identity theft is not a joke, Jim.” He’s right—dealing with a stolen identity is never a fun situation. And credit card companies know that. That’s why they want you to believe the only way to protect yourself is by making most of your purchases with a credit card. But that’s not true!

You’re protected when you pay with a debit card too! Under Regulation E from the Federal Reserve, your liability for covering purchases on a stolen debit card is limited to just $50 when you report it right away.1 And if your debit card is backed by the credit giants (Visa and MasterCard), you have the exact protections as a credit card.2,3

Here’s the bottom line: If you run your debit card as credit when you make purchases (and skip the pin number), your debit card is just as safe as a credit card.

2. Emergencies

Life happens. And when it does, it can be expensive (with a capital E). You know, the heater goes out—in the middle of a snowstorm. The AC fizzles out—on the hottest day of the year. The car won’t start—when you just loaded up the family for a summer road trip.

One in four Americans with a credit card use it to cover expenses they can’t pay for in cash.4 That’s a dangerous game, friend. Credit card companies want you to see them as the hero coming to save the day. With a swipe of the card, an emergency becomes less of an emergency . . . until too many emergencies have you drowning in debt.

There’s a better way: an emergency fund. Yup, instead of relying on the big credit card companies to save the day, you can be the hero of your own story. An emergency fund gives you the protection you need when life happens.

3. Building Credit

You’ve probably heard somewhere along the way that in order to buy a house or a car, take out a loan, or really do any sort of adulting, you need to build your credit. And according to research done by Ramsey Solutions, 12% of Americans use their credit card to do just that.

It’s a popular myth that you won’t be able to take out a mortgage or get a competitive interest rate without a good credit score. This is exactly what creditors want you to believe.

Pop quiz. Can you name the five things your FICO score actually measures?

  • Debt history
  • Amount of debt
  • Length of time in debt
  • New debt
  • Type of debt

This “I love debt” score only measures how much debt a person has accumulated over a period of time. It doesn’t measure things that actually matter—like salary increases or how much you have in savings. You could inherit a million bucks tomorrow, and it wouldn’t change your credit score by one point!

Get this: Paying your regular bills (utilities, cell phone—stuff like that) on time for a long period of time will build your trust and prove you’re responsible with money. The right creditor will take that into account (especially when you’re buying a house—but more on that later).

4. Rewards and Cash Back

Over the years, we’ve learned that credit card companies are master marketers (ahem, manipulators). Their number one tool of manipulation? Credit card rewards and cash-back offers. The trio of points, miles and rewards might seem like a ticket to easy money, right? Not so fast. Once you add up the recurring membership fees and all the interest you end up paying, it’s just not worth it.

Oh, and did they mention those points also have an expiration date? Probably not—but we will. Every card has its own set of expiration rules you might have skimmed over when you signed on the dotted line. And believe us when we say there’s not a millionaire out there who made their millions using free airline miles.

You can’t beat the system when you’re trapped in a cycle. Start your own system and ditch the cards (that includes store credit cards) altogether. Get on a monthly household budget. Not sure where to begin? Try EveryDollar—our free budgeting app that will help you tell your money where to go (instead of wondering where it went).  

Debit or Credit

“I use it just like a debit card.” How many times have we heard this familiar phrase? Sure, this is certainly more reasonable advice than reckless spending . . . in theory. In practice, it tends to go a little differently.

When you spend with credit cards, you’re spending with “future” money. Since you’re not paying the moment you buy something, it’s less painful to purchase something with a card than with cash.5

If you don’t feel that slight pain when cash leaves your hands, can you guess what happens 10 times out of 10? Bingo! You spend more money.

Using a debit card is the closest thing to using cash since funds are withdrawn directly from your checking account. If you must use plastic (like to make purchases online or rent a car while you’re traveling) make sure it’s actually debit. That familiar sting you feel will cause you to pay less in the long run—we guarantee it. So, in the question of debt vs credit . . . debit is always better.

Can You Live Without a Credit Card?

A life without credit cards is a life of freedom. Why? Because you won’t get stuck in the revolving cycle of credit card bill after credit card bill. You won’t have to worry if you’ve missed your payment. And you won’t have to spend your paychecks on old purchases in the form of monthly credit card payments.

Listen, it’s possible to live a life without credit cards. Here are four tips to help you do just that:

1. Live below your means.

A life without credit cards is a life free of debt. It’s choosing to live below your means. It’s not being swayed by a sale sign and spending money you don’t have on stuff you can’t afford.

Sure, it may be fun to get the things you want right now with money you don’t have. But it’s not so fun when you have to pay interest on it later. There’s a better way . . . It’s called living debt-free.

2. Create a monthly budget.

We can’t stress how important this one is. A budget doesn’t tell you what you can’t do. It gives you freedom to spend freely (within your budget) while meeting your financial goals—at the same time. Our favorite way to budget is called zero-based budgeting.

What the heck is zero-based budgeting? Well, it’s when your income minus your expenses equals zero. And no, this doesn’t mean you will have zero dollars left in your bank account. But what it does mean is that you’ll be giving every single dollar a job to do. Try it out with our free EveryDollar app.

3. Get out of debt once and for all.

The only thing that will keep you from being stuck in the cycle of debt is . . . getting out of debt. That means you have to decide right now that you’re done with swiping that card for purchases you can’t afford. It means working harder and spending smarter. And it means getting gazelle intense about paying off your debt until you’re completely free. We promise—it’s worth it. So worth it.

4. Save for emergencies.

You don’t need a credit card for emergencies. You can be your own safety net when you save up an emergency fund.

Start with $1,000—this is step one of the 7 Baby Steps. Keep it in your savings account or a money market account (somewhere you can get to it easily . . . but not too easily—like cash under your mattress). Once you’re completely out of debt (Baby Step 2), build that starter emergency fund up to three to six months of expenses for a fully funded emergency fund (Baby Step 3).

Trust us—the peace of mind you’ll have when an emergency happens is out of this world. Why? Because you’re already prepared. Now, isn’t that a nice feeling?

Can You Buy a House Without Credit?

We know you’ve heard this one before: It’s impossible to get a mortgage without a credit card (and a high credit score). Wrong! While it’s true that you won’t qualify for a traditional mortgage without an active credit account, that’s only half the story.  

If you’ve decided to live without a credit card, that’s awesome! But it doesn’t mean a one-way ticket to renting for the rest of your life. In fact, one of the best ways to buy a house (without credit) is through a process called manual underwriting. Manual underwriting is an approval process lenders use that takes non-debt aspects of your life like your employment record, rent history and size of your down payment to determine your eligibility . . . instead of a credit score.

So, no, it’s a dangerous myth that you need a credit card in order to buy a house. If you pay your bills on time and have been in the same career field for two or more years, for example, you should have no trouble qualifying for a conventional 15-year, fixed-rate loan.

Do You Need Credit to Rent a Car?

It used to be pretty standard that a rental car and a credit card went hand in hand. But not anymore. More and more, rental car companies are starting to accept debit cards as an accepted form of payment.

But not all car rental companies are ready to accept debit cards with open arms. So, here are some quick tips on renting a car without a credit card:

1. Find the right company.

When you’re planning your next trip, call ahead and ask car rental companies about their debit card policies. You want to find a company that will let you drive off the lot without flashing a credit card. There are companies out there who will actually accept debit cards with a smile (instead of the industry standard’s usual eye roll)!

2. Research your car options.

Sadly, some rental car companies may treat their debit card fans a little differently than credit card holders. Don’t worry—this just means you might not be able to rent that exotic sports car you had your sights set on. But that’s okay! Who said traveling economy is bad? But if you really want to rent in style, call ahead to find out if the company you’re looking at will let you rent the car you want with a debit card.

3. Make sure you meet standard driver requirements.

This one’s pretty simple. For most car rental companies, that means you have to be 25 years old and have a valid driver’s license. Just make sure you do your research first. Rules and requirements change based on what city you’re in or even if you’re renting from an airport location.

4. Be prepared to jump through a few extra hoops.

Not all rental car companies think cash is king. And if that’s the case, they’ll make you jump through a few more hoops than usual. Some might want to do a credit check and others might ask you to submit your travel plans. (They just really want to make sure you’re going to give the car back.)

5. Add a budget line item for holds or deposits.

Keeping a regular budget is key—especially when you’re traveling. Make sure to add a budget line to your EveryDollar budget for card holds or deposits. This is pretty standard for renting a car, no matter how you pay.

Handling Emergencies Without Credit

Have you ever found yourself in a situation where you didn’t have enough cash to cover an unexpected expense? Of course you have. And for 78% of Americans who live paycheck to paycheck, that situation is pretty standard.6

Here’s the reality though: There’s no such thing as a short-term emergency that can’t be paid for with cash. Want to hear the good news? It’s never too late to start saving!

Remember that little thing called an emergency fund we told you about earlier? It’s time to start saving your first $1,000—as soon as possible (we call this Baby Step 1). Then once you’ve paid off all your debt (minus the house), you should start building up that emergency fund to cover three to six months of expenses (that’s Baby Step 3). When you have a big ole pile of cash tucked away, you won’t need to reach for the credit card when an emergency strikes.

Say Goodbye to Your Credit Cards for Good

Ready to take the next step? (Hint: It involves a pair of scissors.) Instead of racking up risky credit card debt and spiraling deeper and deeper into the world of debt, it’s time to cut those credit cards up for good. Warning: When you do, you might feel an immediate sense of panic followed by overwhelming peace. You’ll feel panic because you’re leaving behind the very thing you’ve relied on for far too long. And you’ll feel peace because you no longer have to live on someone else’s dime. No more minimum payments. No more racking up interest. Just the sweet, sweet feeling of freedom.  

So, now what? We’re glad you asked.

You should check out Financial Peace University. This nine-lesson course teaches you how to get out of debt and save more money faster. That's right—you'll tell your credit cards goodbye because you'll have a way better plan for your money. Start Financial Peace University today and learn how to do just that!

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Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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