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Do I Need a Credit Card?

You’ve probably heard that credit cards are a fact of life. But is that really true? There are a lot of popular myths out there about how you need to have a credit card if you want to function in the world today, but the only thing they can truly give you is a life of debt, monthly payments, annual fees and sky-high interest rates.

Listen, it might seem impossible to live without credit cards if you’ve never considered it before. We’re here to tell you that not only is it possible to live a full and happy life without credit cards, but anyone can do it with some determination and grit. In fact, people do it all the time. But in order to say goodbye to credit cards and debt for good, you need to prepare yourself for an intense battle—and not just with your own spending habits.

Once you take that initial step toward freedom, you’ll hear a lot of “advice” from your well-meaning family and friends about how you’re choosing to handle your money. Here are six common misconceptions that people use to convince themselves (and others) credit cards are a fact of life:

“I Just Use It Like a Debit Card.”

How many times have we heard this familiar phrase? Sure, this is certainly more reasonable advice than reckless, unchecked spending . . . in theory. In practice, it tends to go a little differently.

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The folks at Carnegie Mellon, Stanford and MIT conducted a recent study where they found that using cash or plastic activate different regions of the brain.1 Researchers discovered two things:

  • It hurts to pay with actual dollar bills.
  • Credit cards “effectively anesthetize” the pain of paying.

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

So, don’t take our word for it. Take the word of researchers at some of the most prestigious universities in the country.

Using a debit card is the closest thing to using cash since funds are withdrawn directly from your checking account.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 (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.

“A Credit Card Is Fine If Paid Off Every Month.”

Ouch. You may be one of those people who thinks you’re just going to pay your credit card off in full at the end of every month. And that may be true—for a time.

The Federal Reserve board estimates that only 48% of Americans pay off their credit card balance in full at the end of every month.2 That means that a majority of Americans are making the minimum monthly payment when that bill arrives in the mail. And you know what that means. Interest, baby! Keep in mind that the average interest rate on credit cards is now 16.28% on existing accounts.3

We get it—life happens. And often it doesn’t go according to plan. So ask yourself this one question: Am I ready to open myself up to a life of more debt when the rewards are so small and the risks are so high?

And speaking of rewards. . . .

“Credit Card Rewards Are Like Free Money.”

Over the years we’ve learned that credit card companies are master marketers (ahem, manipulators). Most major companies now offer cash rewards incentives to their consumers. This creates a cycle where the consumer spends more to get a little, and the company gets . . . well, a lot. This is just plain genius marketing. But that’s not all.

The trifecta of points, miles and rewards might seem like a ticket to easy money, right? Not so fast. Once you factor in the overall annual percentages you’re “earning” alongside recurring membership fees, the juice simply isn’t worth the squeeze—no matter how you slice the lemon. 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 has made their millions using free airline miles.

Still unsure? The familiar phrase “If it appears too good to be true, it probably is,” holds true in most scenarios, especially ones involving credit card offers.

At the end of the day, you have to ask yourself, If I have the money now to pay it off at the end of the month, what is stopping me from paying for things in cash as I go and living on a monthly budget? If it’s just for the rewards, are they worth it? Credit card companies are not stupid. They’ve done the math and know how little to offer their loyalty customers to keep them swiping more (translation, spending more). They read the fine print even if you don’t, which often contains phrases like foreign transaction fees, frequent flier mile blackout dates and cash-back statement credits (instead of dollars).

You can’t beat the system when you’re trapped in a cycle. Start your own system and ditch the cards altogether. It’s a good idea to get on a monthly household budget right away. Unsure of where to begin? We have tools to get you started.

“A Credit Card Helps My Credit Score.”

It’s a popular myth that you won’t be able to take out a loan 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
  • Debt level
  • Length of time in debt
  • New debt
  • Type of debt

Someone needs to rename the almighty credit score the “I love debt” score. A credit score only measures how much debt a person has accumulated over a period of time. It does not measure things that actually matter, like salary increases, amount of savings or sudden inheritances.  

Remember that the credit card is still a relatively new concept: The first modern card was introduced in 1950 with the founding of the Diners Club.4 If most Americans who came before you were able to stay out of debt, then so can you.

The truth—unpleasant to some—is that the wealthiest people in our country are not wealthy because they have a high credit score. They are wealthy because they have saved appropriately and paid for things that they can afford up front with cash.

“I Need a Credit Card to Buy a House.”

You’ve heard it before (and you’ll hear it again): It’s impossible to get a mortgage without an active credit card and a high credit score. While it’s true that without an active credit account you won’t qualify for a traditional mortgage with lenders, that’s only half the story.  

One of the most common things debt-free people do is contact a company that does actual underwriting. When you live on a monthly budget, have paid off all other forms of debt, and have a fully funded emergency fund (which we highly recommend), you can contact a mortgage company that does manual underwriting when you’re ready to buy a home. Manual underwriting is a process where they look at things like employment record, rent history and size of down payment to determine your eligibility.

So, no, it has actually become 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.

“I Need a Credit Card for Emergencies.”

Plenty of people “think” they treat their credit cards like that break-in-case-of-emergency axe hanging behind a pane of glass only to sound the alarm just a little while later. There is no such thing as a short-term emergency that can’t be paid for with cash.

You may find yourself in a situation where you don’t have enough money in the bank to cover an unexpected expense like an emergency room visit or a repair to your car’s transmission. With so many Americans living paycheck to paycheck, this is more common than you might think.5

The good news is it’s never too late to start saving. We recommend stowing away $1,000 as an emergency fund as soon as humanly possible (what we call Baby Step 1) then slowly building up three to six months of money to cover expenses once you have paid off all debt. When you have a substantial pile of cash tucked safely away, you won’t need to reach for the credit card when an emergency strikes.

Get Serious Today!

Ready to take the next step? Hint: It involves a pair of scissors and an upward snipping motion. Instead of racking up risky credit card debt and spiraling deeper and deeper into a world of financial insecurity, we recommend you cut those credit cards up for good, live on a monthly budget, and start stockpiling money for an emergency fund as soon as possible.

Want to learn how to take control of your money and never rely on a credit card again? Get started with a free trial of a Ramsey+ today. Nearly 6 million people have learned to manage their money wisely and dump debt (and credit cards) once and for all. 

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.

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