Could you cut up your credit cards?

Green VisaYesterday Chance (YNAB COO) and I were sitting in the office discussing the gravity of yesterday’s post, and addiction in general. It got us on the subject of my old post on debt addiction, and how I manifest something like 11 of the 15 signs of being addicted to borrowing.

The topic of credit cards came up, and Chance mentioned that he and his wife don’t use them at all, which I found interesting. Ironically, Chance and his wife are the type of people (as many of you are) who could use credit cards as nothing but a tool of convenience and security, without substantial risk of getting into debt.

I, on the other hand, have a history of running expensive credit card balances. Yes, it’s been a couple of years since I’ve had any personal balances on credit cards. But history proves my habit and my risk of future indebtedness.

The question, then, is why do I keep them? Yes, credit cards have benefits like convenience, more secure online purchasing, miles/points/cash back. But, for someone like me, do those benefits outweigh the risk?

*To be clear, I’m not anti-credit card. They’re just financial tools that can be used to a person’s benefit or detriment. 

I can’t answer that today, but here’s what I find really interesting: when I think about cutting up and closing the cards I have a strong emotional/physical reaction. It freaks me out to think about being without credit cards. I shudder at the idea of having balances again, but I also hate the idea of not having access to them. And I just think that’s interesting.

Am I the only one who gets a pit in my stomach when I think about life without access to credit cards? What does it say about me?

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About mark

Mark has been working online full-time since 2008, owning an educational website and two small software businesses. He joined YNAB (as Blogger/Staff Writer) after selling his businesses in late 2012. In addition to his love for budgeting and personal finance, Mark enjoys hanging out with his wife and two kids, snowboarding, CrossFit, bike commuting, and tinkering with side businesses.

92 thoughts on “Could you cut up your credit cards?

      • How useful is a good credit rating if you aren’t using credit at all? If we were to pay for everything with cash (home included) is it even needed? I’m asking this because I hear closing credit accounts can hurt your score but if I’m not buying anything on credit… Does it even matter?

        • Indeed it does matter. Part of your credit score is determined by the age of your accounts; the longer you’ve been a card holder (assuming you don’t have any late payments and you’re responsible with your use) the more likely you are to be seen as a responsible person who isn’t going to default on your debts. This raises your credit score.

          Look at it from the bank’s eyes: who’s more risky of a borrower:

          1. Someone who’s had a card open for one year (or two or three), doesn’t use it, and recently closed a few other accounts (perhaps because they see those open accounts as opportunities for trouble that they’d rather not get themselves into? I don’t know… neither does the bank.). Or,
          2. Someone who’s got several cards open, the oldest of which is 10+ years old, pays their balance in full each month, and is clearly a master of their financial domain.

          Banks like #2 much better than #1.

          • …and to answer your original question, “how useful is a credit rating if you pay cash for everything?”

            Credit rating is always something to maintain; you never know when your situation could change and you need access to credit, for whatever reason. You want to give yourself options. Without a good credit rating, you’ve severely limited yourself and may find you have far fewer/less favorable options when you find your life circumstances dictate the need to utilize credit.

            True, you may never find yourself in a situation like that, but unless you can predict the future, it’d be wise to leave yourself plenty of options.

            • And credit rating can be used to evaluate your “riskiness” for other situations. Employers and insurance company check your credit, although I’m not sure it’s the score they’re interested in or maybe just judgments or negative marks.

              • Some insurance companies use your credit scores to set your cost of insurance and many employers use credit scores, as well… although the only scores they use

                • —Continuation—

                  Is the FICO scores. Other scores the big three sell you are not what businesses use to evaluate you with, at all.

  1. I’ve heard of people putting them in waterproof bags, putting them in larger bags filled with water and then freezing it. You still have them if you need them but now there’s a mandatory “cool off” period where you can find an alternative while it melts.

        • I’m sorry, but that’s just not true. A debit PIN transaction is orders of magnitude more secure than a credit (or debit) signature transaction. What I think you meant to say is that credit cards provide less exposure to your money, and I would agree with you on that. Ironically, debit signature transactions offer you more fraud protection than debit PIN transactions as long as your debit card has the Visa/MasterCard logo on it.

          Practically speaking, your debit card losses are limited by Visa/MasterCard zero-liability policies, as long as you sign for transactions. However, any bank worth their salt offers zero-liability on all transactions, regardless of whether you sign or enter your PIN. Any reputable bank will also give your account a provisional credit equal to the amount stolen while their fraud team investigates.

          More people—hundreds of thousands, if not millions—have been hurt by credit card debt than by debit card fraud. With debit card fraud, the crooks take your money and you eventually get it back. With credit cards, the bank takes your money at 18-24% interest, and you never get it back (assuming you carry a balance, which more than half of credit card users do).

  2. I am sure you are not the only one. I actually was like you before I cut up mine. But once I did it, it turned out to be no big deal. In fact, it’s been very liberating. Being on a cash basis has really gotten me to follow my budget. And having YNAB has made that so much easier. I have been without credit cards for almost a year and a half and I swear, I will never get another one again.

    • I was going to say the same thing. It was like a little funeral when we cut up the last one, but now I love it. I feel more in control and when I spend cash I have the emotional aspect of spending MY money, rather than swiping a card and not even paying attention to the total.Yikes!

  3. There is a false sense of security with having those cards be there. If you only have a bank account, the money you have is really ALL that you have. With the credit cards, you have your money and all this extra wiggle room.

    That’s how it plays out for me.

  4. I certainly couldn’t cut up my credit cards. Part of the reason, though, is that my husband is terrible about expense tracking. I download transactions every few days, and ask him about his purchases. We actually try to forbid cash purchases, as a rule, because cash purchases tend to randomly disappear. We even have a “missing cash” hashtag for the “misc” category :(

    We could try to use debit cards, I guess. But I have the same gut reaction as you. I need that safety net, that buffer, in case of emergencies, where I need instant access to funds. To debt, sure, but debt’s better than starvation, you know?

    • “Part of the reason, though, is that my husband is terrible about expense tracking.”
      Good point! that drives me crazy when a transaction is not recorded, especially in a checking account. at least with a credit card your not worried about an overdraft fee.

    • Have to say it is one reason I have no desire to marry. His, hers, and the house has been my way for many years. The one major cause of divorce in this country – finances. And, I manage mine quite well on the my business income and a part time employer income. And, no man is going to mess that up in my life. How to manage spending not using cards (I don’t use credit cards, and get solicitations all the time): use your YNAB to the max, have many categories and sub-categories, and get a receipt for every purchase. Ask for it if they don’t off it; demand it. And, allow oneself so much “play” money, and when it’s gone, it’s gone, just like the multiple envelopes of yesteryear.

    • My husband is the same way and we also use credit cards. We also save up the points from our credit card and over the past 10 years have gotten close to $1000 worth of rewards from our points. When my husband and I first got married he used his debit card for everything. Then one day someone completely across the country was able to make a copy of his debit card and took all of the money in his account (approximately 1k). We ultimately got it back, but I NEVER had this experience with a credit card so I added him onto my credit card and he has never used a debit card again. I’m very anti-debit cards except for when we need cash withdrawals from our checking account. I’ve also had 3 or 4 friends / family members that had the same experience with their debit cards.

  5. A while back we would use credit cards all the time, pretty much for everything. My thought was I don’t want to give my bank card out to anyone to avoid fraud. I would rather deal with a CC company for fraud then my checking account. Well, spending on credit cards give you the ability to spend way more more than you intend. After a while the card you were paying off every month, turns into a balance. This happen to us. I did (in hindsight) the hardest thing to do. I called up and cancelled them. For several months it was extremely hard. We didn’t have the “cash float” from paycheck to paycheck. Talk about having to cutback, and really abide by the budget…
    We had to re-learn how to spend and what was important to us until we got paid again.

    It worked. It was hard, but we did it. We have since gotten a credit card and don’t use it very often. come to think of it, usually only when we are gassing up the cars. (I once got burned from fraud using a pay at the pump)

    I think the biggest thing with credit cards, is that if you are living a paycheck to paycheck lifestyle, it’s the “float”

    One more thought, i hear people talk about the miles/points, etc that they rack up by using the card. Looking at some of the things you can redeem these points for, it seems that the things you can choose from are way overpriced anyway. Are you really getting a good value on using points? I don’t think so.

    • > Are you really getting a good value on using points?

      I agree with you that trading in those points for “stuff” isn’t all that useful. However, these “points” can often be traded in for cash back instead of for stuff. This can turn using a credit card into another source of income.

      Granted, the income is not substantial at all. For my personal use, I get 1% cash back which amounts to between $20 – $30 a month (sometimes higher due to special purchases getting 5% back). This may seem extremely small, but letting this balance build all year gives me an extra $240 – $360 for Christmas shopping. All this at no cost! (I pay off balances almost weekly and have no type of service charges for the card.)

      • Many small businesses run their normal expenses through a credit card and the points can end up being fairly substantial. For instance, the ads we run are all profitable on their own, so the ad spend would happen either way.

        There’s also the instance of company cards being used by employees in the normal course of business, where the employees earn points/rewards/miles and then benefit personally.

    • I disagree with your thought that you aren’t getting good value on using points. It depends on what credit card you use and how often you shop online. For example, my husband and I buy a lot of stuff through Amazon because the prices are great, no sales tax, free shipping, and we don’t have to get off our butts and drive to the store. :) We have their credit card which gives us 3% back on Amazon purchases. Over the years (past 10 or so) I’ve used those points to get a $400 video game console, a $450 high-powered blender, and various other less expensive items, all without paying any money out of pocket. This may not seem worth it to people who don’t have self-control with credit cards, but I have never in my life carried a balance, and I’ve gotten lots of free stuff so it seems like a win-win to me. I don’t work for Amazon, btw, I’m just a person that likes free stuff. :)

        • Luxuries are not a bad thing, and frankly, I get tired of the “living bare bones” mentality that I find here sometimes. For some people, they live simply and are just fine, for others, they like to have nice things. It does not make them “bad” or “stupid” or anything along those lines. It sounds like Maureen has found a way that works for her to get items that she might not have been able to afford – my best guess is that she used them as gifts for the family. Even the basic YNAB classes encourage people to save for items that bring them joy.

          Just this week, my husband and I budgeted to buy new pillows for our bed. I stayed within budget, and now we can lay our heads on wonderful pillows (as opposed to the cheap $5 pillows I’d purchased 6 months ago that broke down over time, and were causing sleep problems and neck pain).

        • She got those items for free using rewards points. I have $350 worth of free Amazon points right now, too, resulting from using my credit cards to make my purchases and then paying the balance off in full each month. Heck, in August I bought a car for $11,000 and put it on my CC and paid it off at the end of the month. Got a free $110 in Amazon points just for doing that.

          I use those points to buy my Wants that I would otherwise not budget for during the year.

          For me, I’m running a tight budget. 22% of my income goes into the 401K and $5500 goes into the Roth IRA automatically. These are the first things I take care of. Then I fund all of my needs and future needs. Then I have a small amount left over for things like Entertainment and Vacations and other wants.

          The extra stuff I get via rewards points is a treat to myself for taking care of my future self and my current self.

          I refuse to get a debit card for security concerns and check writing is the worst.

          Credit cards are just too good of a tool in the hands of a responsible consumer.

        • I guess it depends on what you consider luxury items. A $450 blender isn’t a luxury item in my house. It’s a necessity for the way we eat, and helps us stay healthy enough to avoid the doctor for the most part.

          Generally, though, I agree that people likely end up with stuff they don’t need. But as long as they don’t carry a balance, they’re getting the stuff for free.

          For my part, I run all of my expenses through two credit cards. Last year I earned hundreds of dollars in cash back on the card I use just for groceries and gas, and got 4 free plane tickets with the other – tickets I would have otherwise purchased. It’s totally worth it to me, but I also am very careful with my spending and don’t ever carry a balance. If I saw that changing, I’d revert to cash in a nanosecond!

    • We live across the country from family and save about $1500 per year (even after taking into account the annual fee on the card) on our flights by using our credit card for our normal purchases. So, yes, I think we’re getting a good value :)

      If we weren’t going to be flying anyway, I’m not sure I would have a card with an annual fee.

  6. When my wife and I started using a credit card for as much in our budget as possible is when we started being really successful with the budget. In the past, we have not behaved well with credit card, but with the addition of ynab’s budget, we have been 100% successful in carrying a 0 balance. Cash only caused problems for us because once it’s out of the envelope, it gets much harder to track. A debit card could work for this as well, but we choose to use the credit card as our primary spending tool.

    Could I cut up the credit card, yes. Could I cut of the credit card AND debit card and go 100% cash, no.

    • Agree here. I don’t use credit cards, but have used a debit card for years, even before the masses started using them. I remember using a Visa debit card in the early 90s. I am using more cash these days (taking out some cash when I a get groceries or something) and using the debit card less. But, as for total cash. No, I can’t live off the grid.

  7. It may be that right now, sensible credit card use (by that I mean paying the full amount each month, using it only on budget, oh, you know all that YNABy stuff) isn’t where you are at yet, and I emphasize YET. It may be that that gut reaction is something you need to dig into deeper, and ask yourself more questions to really get to the root of your fear. It may be something you learned as a child from how your parents dealt with credit cards. Or not. Just saying that typically, such a huge reaction usually is an indicator that there are multiple layers to explore.

    I also think that by essentially saying “I have a history of abusing credit cards and will abuse them again” is setting yourself up to do just that. Kind of like a dieter saying “I will never lose weight”. Well, then the dieter won’t, because the dieter is projecting his future.

    I used to heavily abuse credit cards, and had to stop entirely for quite a long time. Now though, I’m at a different place where I can use them as a tool. I have 2 store cards, and 2 credit cards. Most months, I only use the one credit card because of the benefits I get from it. I keep the other credit card active by paying for Netflix each month, because I was advised that if I close an account it takes a huge hit on my FICO score (that score that no one knows exactly how it’s done, but can impact things for major loans).

    • You are absolutely correct; the older your accounts are (assuming you’re responsible) the more likely you are in the bank’s eyes to pay your debts… thus, the better interest rate and perks you will receive.

      For example: there is a card out there which offers 40,000 bonus points just for signing up, as long as you spend $3K within 3 months. That’s easy if you plan a big purchase (say airline tickets and hotels for a holiday trip to see the family). Plan your spending and you could really rake in great rewards from these scoundrels… but you’ve got to have a good credit score to get the card in the first place. Part of that good score comes from being responsible over the long-term.

      • My FICO score is 815. I just closed a credit card (Chase), because I got a Capital One card with 1.5% cash back which was better than Chase. Do I worry that they will slam my score to 700? No! Even if that happened, it would build back up quickly enough.

  8. It’s really a question of knowing yourself, and your personal habits, temptations, etc. There’s no shame in someone who struggles with consumer debt, like credit cards, to find some way to reduce or remove the temptation, whether that’s cutting them up, freezing them in a block of ice, or whatever. If they know where they are, they can move forward from there, whatever that means for them.

    In our case, we’ve been very responsible with our cards, so I don’t see any point to cutting them up currently. If our habits changed and we started having trouble, then we’d have to reevaluate, and potentially do something about it.

    The real trouble with cutting up CCs (or freezing in a block of ice, etc.) is that it’s still pretty trivial to use them online, even if the physical card isn’t present. I know it only took me 3 or 4 uses of a particular card before I had the numbers memorized. If that’s the case for you, then cutting them up, without actually closing the account, isn’t going to do much.

  9. I could live without my card, but it makes my life so much easier that it would be a drag not to have it.

    But here’s another thing to consider: in many ways, credit cards played a huge role in turning my life around financially — for the better. Years ago I was working for a publisher who decided to cancel the newsletter I was working on. I had the choice of staying with them and writing another newsletter on a topic I had abolutely no interest in, or I could strike out on my own as a freelance. I chose to freelance.

    My first two years of freelancing were a disaster: I made about $6,000 the first year and maybe $10,000 the year after that. And I went through a divorce at the same time, leaving me in a mostly bare apartment with nobody else to share the rent. Sometimes a few months would go by between freelance jobs. I lived on my credit cards during that time, using them for groceries and even using those awful credit card checks to pay my rent. I racked up around $18K in credit card debt during that time.

    But my freelancing eventually landed me a steady gig, which then turned into a fulltime job that I am still working at today, nearly 20 years later. And here’s the kicker: my salary today is nearly 5 times what it was at my last job before I started freelancing. I paid off my credit card debt a few years after I started earning more serious money, and haven’t carried a penny in consumer debt since then. But even when I consider all that debt and the interest I paid on it, I view this as a very successful example of how a credit card can be a good thing to have. Without it, I probably would have stopped freelancing and taken some other job, and I’d probably be making 4 or 5 times less than I do today. That debt I carried has paid for itself many times over.

    I’m not normally an advocate of leveraged living, and I’m very debt-averse. But I disagree with the notion that “all debt is bad,” because I’ve seen firsthand the benefits that leveraging (and a bit of luck) can accomplish.

        • The rewards points allow me to buy some Wants that I would not otherwise budget for. In August, I bought a car for $11,000. Put it on my credit card. Paid off said card a few weeks later when the statement was sent out. Because of that, I received $110 in Amazon.com credits.

          I can now buy some wants when they come up and use my real money to invest in my future and try to retire early.

    • I’ve had at least 4 or 5 friends / family members (including my husband) have money stolen from their debit cards. My husband went to pay for our groceries with his debit card and we couldn’t pay b/c it was “locked.” When we called the bank they said they locked the account b/c someone several states away used it at an ATM (even though it was still in my hubby’s possession) and drained the 1,000 dollars that was in the account. The other people I mentioned previously all had similar stories. I never had an issue like this was my credit card. We never used debit cards again after this incident. They are not safe, in my opinion.

    • A credit card won’t put you in debt if you are following the YNAB methodology. You are only spending what you have budgeted.

      Plus, if your debit card gets hacked, you might not have access to any of your money for several weeks. If your credit card gets hacked, you just reverse the charges. CC is much safer than a debit card.

  10. Credit *can* be managed successfully. I’d say for those who can’t control the use – get rid of them. But seems better to deal with the ability to exercise control. I find today’s cards can be useful in a frugal lifestyle with all the loyalty points, cash back, extra discounts being offered. I was always anti-credit card because I never learned how to manage credit and ended up with charge-offs, etc as a young adult. But years ago, I saw a woman come into Macy’s to shop with her card – which of course awarded higher sales discounts than a regular paper coupon. After she completed her deeply discounted purchase, she turned around and wrote a check for the card balance. I smiled at her wisdom; I liked they way she did that. I don’t have many lines of credit these days but I am more wise about how I use those I have. And I avoid interest at all cost! And as a happy YNABer, I also know not to make a purchase with a card if I don’t already have the money anyway.

  11. “Am I the only one who gets a pit in my stomach when I think about life without access to credit cards? What does it say about me?”

    I think it says that you rely more on lending institutions for your financial security than you do on yourself. Which for, me, would be a scary thing. I would think in your situation, cutting up the cards would be liberating, even if terrifying at the time, because it would demonstrate to you and your family that you are taking control of your finances completely and no longer relying on banks for your security.

    My husband and I have been without credit cards for four years. We pay for everything with a debit card for an interest bearing checking account. Meaning we have all the online transaction history for reference like a credit card, and with 2.5% interest on the account that’s like getting the cash back perk of a credit card, yet all without the debt. We have 6 months worth of expenses in a savings account for emergencies. We feel a tremendous amount of financial freedom living this way.

  12. My husband and I closed our last remaining credit card about 4 months ago. We never carried a balance but thought (like most of the world) that life is not possible without a credit card. We have a debit card for our US account and another for our German account and that’s it. We also travel a lot and have never had a situation come up where we needed a credit card. The main reason why we decided to ditch the credit cards is because we don’t want to support an industry that literally destroys people’s lives.

  13. I have never ran a balance up on a credit card. I’ve just always had one through my credit union because my dad said it’s a good idea to have some credit history. That’s about all he was right about regarding credit though.

    Nowadays I have a chase card I use for everything that I accrue points on, but I pay it off weekly and use it pretty much just like how I used my debit card. My credit limit keeps expanding but I barely put more than 200 bucks on it before it gets paid. I end up churning out like 20 bucks a month worth of reward points which isn’t a lot but it’s a nice bonus.

    Credit has never been an option for me for any sort of emergency spending or anything like that. Having my massive student loan debt I feel enough anxiety about debt that adding more to me would be absolutely unacceptable, My life is already on hold for the next (at least) five years or so until I get this student loan debt paid off.

    My income is super low though, I think I am not making even half of national median for someone who has a college degree, so I’m probably some kind of weird outlay.

  14. My husband and I cut up our credit cards several years ago and could not be more free. By creating a liveable budget and sticking to it, we have no need to fall back on credit cards for ‘emergencies’. Also, as someone else pointed out, with a debit card, you get all the same benefits without the downfalls of a credit card.

  15. Well my credit is so bad (ty student loans and low income) the only credit card I can get is a secured credit card that only has a $300 balance. I just charge gas and other items about once a month.

    I’d like to get to a point where I can get a credit card that I can use to get rewards and air miles with a higher balance and pay it off every month but it’s going to take some time to get there.

  16. I have the same reluctance with one card (my first card in fact), the others I have left alone to the point I think one closed and the other – well I should find out and kill it if it’s not already dead.

    Since we stopped using credit cards several years ago, there have only been two true emergencies that have come up that we used them for. One about a month ago where water was actively coming into our basement and messing up carpet and other things – we used it to get a pump to stop the water from coming in – paid it the next pay day. The other was for my wife’s grandma’s funeral 500+ miles away – we drove, then paid that off within the month.

    I too have run up the debt on them before and I can’t trust myself using them regularly – I have a nasty habit of spending the money I plan to use to pay them off. You can’t spend the same money twice.

    Still I’m reluctant to kill the accounts altogether. The battle has nothing to do with the card itself, it has everything to do with my will. I often find that I am my biggest hurdle.

  17. I find it easy living without a credit card!

    I have never had a credit card in my life. Never wanted to, never needed to.
    All you need is debit card to pay with your cash in bank and you can never get to this unhealthy credit card debt

  18. What about when you rent a car? If you don’t use a credit card, the car rental companies put a $300 cash hold on your debit card. I don’t know about you but I don’t like doing that especially if you’re just renting a car for a day and the bill will only total about $60 in the end. I’d rather have a credit card for these moments.

    Maybe just keep one and cut up the rest.

    • The amount of the hold varies by rental car company. Some are $100 (or less), and some make the hold equal to the anticipated amount of your final bill. They put a hold on your account when you use a credit card, too—you just don’t see it.

  19. As other have no doubt mentioned, do not cut up your cards. Keep them. The longer you’ve been a customer, the better your credit score–assuming you don’t run up balances. Using them and paying them in full each month is healthy; it shows you’re responsible about debt and that you’re a relatively low risk in terms of defaulting on your debts.

    I thought about cutting up my cards, too–I have one with a certain bank which I absolutely hate–but hey, I’ve been a cardholder since 2003 and, well, I don’t think I want my credit history to show that I can’t keep a card open for very long… my next most recent card is quite new.

    So, I say keep them. Exercise that muscle we all have called responsibility. Once you learn to be responsible, you’ll look at these credit cards in a whole new light–especially those which offer a 40,000 sign-up bonus points for spending $3K in 3 months. Hint: got any big ticket items you’re going to purchase soon? See if you can put it on the card (assuming you’ve saved the cash for it already and were planning on paying cash) so you can collect the points.

    As it turns out, if you’re responsible about credit, you can use these cards (their rewards) in your favor. It’s kind of like payback for all the years they raped you with high interest fees and overlimit fees and lowering your credit line to just above your credit balance, making you look like you’ve now maxed out your card.

    But i’m not bitter. No, not me. :-)

    • Yeah, because these multi-billion-dollar financial institutions are running away with their tails between their legs when you make $500 per year on them. Keep using their products that they spend millions on to market to you—that’ll show ‘em! Some big bank CEO is sobbing in a corner right now because you stuck it to him so hard.

  20. If you wind up paying more in interest than what you get for benefits, then it is completely acceptable to cut the cards up. I’ve managed to get my finances under control so I don’t want to think about getting rid of them. The cash back bonus is a tiny savings that will help me out greatly over time. In addition, I do enjoy knowing that they have better financial protections than what I would get with a debit card.

  21. With a credit card, if it’s stolen, or used, I’m protected. If my debit card is stolen and used, the money is gone (as far as I know with my bank.

  22. We had 1,000 dollars stolen from our debit card and we did ultimately get it back, but it was a huge PITA. My credit card company, on the other hand, sends me texts whenever a new charge is suspicious, and the texts asks me to confirm that I was the one making the charge or it won’t go through. I refuse to use debit cards and disagree that they are just as easy or safe to use.

    • You could create a separate checking account with its own debit card that you use for day-to-day spending, and keep the majority of your money in a different savings and/or checking account. That would limit your losses in the event of fraud, which, by the way, you’re not responsible for.

      In the last 15 years, I’ve had one instance of fraud with a debit card, and my bank immediately issued a provisional credit equal to the full amount taken while they “investigated”. In fact, every bank or credit union I’ve banked with has had the policy of zero-liability and issuing a provisional credit, and yours probably does too. (If your debit card has the Visa or MasterCard logo on it, it definitely has the zero-liability part.)

  23. I would cut up my cards except for reimbursements. Occasionally I travel for work and I get reimbursed within that next pay period — It’s hard to imagine having enough free cash to travel with.

    My brother had no credit cards, and a rental company charged him some crazy high rate because of it. Triple or something ridiculous. I’m sure they assumed he was irresponsible, instead of being the super-responsible no-debt guy he is.

    So, yes. I fell into the trap of over charging when using cards for daily items.Now, they’re just for things like travel and reimbursements, where you would loose money if you didn’t have them.

  24. As a long-time member of DA, I cannot incur unsecure debt. It’s a slippery slope for me. I’ve spent too much time digging myself out of the holes I made to make it easier for me to do it again.

    Having a fall-back position that puts me into debt does nothing other than just that: put me into debt. It would keep me from taking seriously the responsibility of putting aside savings for emergencies.

    If I had a credit card with a $2000 limit, wouldn’t it be better for me to develop the discipline of actually having $2000 on hand for that purpose?

    YMMV. That’s my key to financial security.

  25. Mark, of course you have a strong emotional reaction to the idea of cutting up your cards, as you also have a reaction to the idea of running up more debt on those cards. You were emotionally involved with your credit cards for a long time, running up debts and causing stress. Furthermore, you may have learned in the past to think of them as your safety net, the last line of defense in keeping you from starving — I did during the recession after my emergency fund went to zero. Now you may be conditioned to those responses, but in time that’ll go away as you stop relying on them.

    A credit card is a great tool. I don’t see them as a credit line, just a tool. All my bills are automatically paid by credit card. Internet, health insurance, cellphone, online services, etc. Even the cards pay themselves in full automatically from my checking account. The money is always there as it was budgeted, thanks to YNAB. I check my statements every week or sooner and get the rewards and perks. Rent is the only thing I write a check for.

    A few months ago I transferred card balances ($2,200) to a 0% offer as I was starting to use YNAB. Now I’m well and on schedule to pay off that balance transfer before the 0% ends. :) The tricky thing is that interest on new purchases accrues daily and credit cards continue to charge you interest for *two* statements after you start carrying a balance. For the next two months, every time something was charged to my card, I’d schedule a payment for the next day just to avoid interest fees as much as possible. I even sent the card customer service department a message to ask when they’d stop charging me interest now that my balance was zero and they spontaneously refunded me $4.50 in interest fees.

    By the way, banks issuing credit cards make one-third of their money from merchant fees for all transactions. The other two-thirds are cardholder interest fees (from people who carry a balance). You can look that up online. They would probably still survive on just merchant fees, maybe just barely, but you can see it isn’t all about interest fees for them, even if consumer prime loans are a very profitable business (like Lending Club).

  26. Perkstreet financial has a debit card with cash back rewards. The rewards you get from the big bank credit cards are at the expense of the poor, naive, uninformed, and/or desperate people that they take advantage of. Debt is dumb, adds more financial risk regardless of whether you carry a balance or not, and is absolutely unnecessary in today’s debit card world where all the same CC protections apply. If you have a decent-sized cash buffer/emergency fund in its own account, a debit card theft on your checking account is pretty easy to deal with.

    • Perkstreet just recently went out of business, and their accounts have transferred to Bancorp. No more perks on the debit card. We’re going to miss that – we earned over $1700 cash back in just over 2 years with them – by spending our own money with the debit card.

  27. Also, check out the “You are not so smart” podcast, the episode called “Spending Money.” Studies show that paying first, consuming later actually makes us happier. Credit card use inherently makes you sad.

  28. We are anti-credit card/debt, but we have one credit card for the many reasons people above mention.

    First, when we were young, we didn’t have established credit. Between paying off student loans and using our 30-day interest-free credit card to purchase our usual stuff (ie, food), then paying off the *full balance* within a few days of purchase with the cash we had in hand, we were able to develop a really good credit.

    Then, we decided to keep it because the longer you have it and use it like this, the better it is for your credit anyway. So, we’ve been using it for 15 years now.

    During this time, we bought and sold a house (for a profit no less) which improved our credit, bought and sold cars (with max down payments and minimal loans to improve credit scores more), and paid off student loan debt. We also moved to another country, and now are returning to the US.

    During our time overseas, we continued with the credit card and an account in the US to pay it (same credit union). This has maintained our credit while we were abroad, so when we decided to return, it was easy for us to get an apartment — credit is still churning right along!

    It is also useful for big purchases — like our tickets to return to the US. We already paid the credit card off, but it’s the easiest and most secure way to pay for them, really.

    But, unless we are using it to buy something we can pay cash for within 30 days, we wouldn’t use it. We have an emergency fund for emergencies, so we don’t really need the credit card for that purpose.

    • Also, we are planning on renting for a year, then purchasing a live-income property where the income covers the mortgage.

      The places we are looking at is only 1.5x one of our incomes, and we already have 10% down saved.

      Having good credit will help us get the mortgage we want: 20% down, 15 yrs, low interest, traditional mortgage.

  29. I haven’t used credit cards for years. I have a single debit card and carry cash up to around £100. I do think it’s useful to have a second card for traveling though – that’s about the only reason I might take on a card again. Having said that I traveled to Dubai last year without a credit card and had no problems. I find it’s easier to track my finances with a single debit card. You don’t get that confusing issue that you get with credit cards, where you never really know where you are. The debit card being real-time makes it much easier to track my expenditure.

  30. We use our credit card (with rewards) for many of the normal monthly bills. Things like utility bills and other things that are already in the YNAB budget and will be paid one way or another. But since all of those mandatory monthly expenses add up to a lot of $$$, the rewards we get for using the card are also pretty nice. We get 1-5% cash back, depending on category of expense, and so running only $1,000 through the credit card instead of the debit card or cash/checks will give us between $10-$50 of profit. That’s enough to add a little fun money to our budget, so worth doing. And as long as we keep our eyes on the budget categories and don’t overspend, using the cards is smarter for us. (Not to mention that the transaction download does help if one of us forgets to put something in YNAB right away….)
    Before we used YNAB, we did overspend a bit of credit cards monthly due to not tracking our expenses well. Now that we’re on the YNAB system, it doesn’t matter what form we use (cash, credit, debit, gift card, PayPal, etc.) as it is all tracked by category to keep us from overspending. :)

  31. I’m in a somewhat interesting situation as I have never had a credit card… until last month. Did I get it because I need a credit card? Did I get it because I depend on a credit card? Did I get it because I really want to have that extra buffer? Nah. If I’d gotten it for any of those reasons, I would have gotten it years ago. I got it because the great people in the YNAB forum kept insisting that it was a must-have. And those people tend to know a thing or two about economy.

    Could I cut up that credit card? Sure. No problem. I’ve lived on debit all my life, and I would have no problem continuing that. (Also, I’m pretty sure the laws are different over here and that past credit information has nothing to do with the credit score.)

    But then, a good follow-up question would be “If you’re using YNAB, and you’re using it correctly, would you really ever have any need to cut up that credit card?”

  32. I have a Capital One card that I am getting 1.5 percent cash back on. I have it set up such that when my rewards balance hits $25 I get an immediate $25 credit to my account. We are averaging $35 to $40 Income per month by doing this. I carry no balance of course. This is too much free money to turn down. Responsibly using a rewards credit card in this fashion makes sense.

    • Yes. The trick is to stop thinking of credit card charges as future money being spent. Live within your means by spending only money that you already have.

      Instead of paying interest to the credit card companies, you will actually earn interest on the money you have already spent and even earn rewards! That puts you three steps ahead and completely turns the tables on the credit card companies! :-) It all has to do with changing the way you think about credit cards.

      If you don’t have the self discipline to handle credit cards the smart way, it might be best for you to cut them all up.

      • Exactly the point. I use them as debit cards.
        Actually, I’m in Switzerland. The nightmare country for credit card companies. We don’t like debts here and almost nobody use them to pay over several months. They pay in full each time they get the bill. MasterCard even thought about leaving Switzerland for that reason.
        They just get the commission on each transactions, but for 7 mio inhabitant, those are peanuts compared to the 18% interest rate they could charge…

      • Same.

        If you are a responsible adult who can fund your retirement and keep the costs of your needs and wants low, a credit card is a great tool to optimize your personal finances. I get a couple hundred bucks a year to treat myself to a few of my Wants. I don’t have to account for these in my budget and can then use the money I would have spent on them to add to my investments.

  33. I have 2 credit cards that I use for booking travel and purchasing items online. My credit and checking accounts have been compromised in the past and it’s easier to straighten out a fraudulent charge with a credit card. If my checking account was targeted, I would have to close the account and order new checks and a debit card.

    In June I became debt free and was concerned I would start the cycle again. That was before discovering YNAB. In just three months, I’m managing my finances more responsibly than ever before. I’ve tested the waters by purchasing a laptop with my credit card and used money that I stashed in an “unexpected expenses” category to pay off the card. So no, I don’t think credit cards are bad; it’s my behavior that is questionable.

  34. I had a pit it my stomach when I was about to cut up mine, and my girlfriends credit cards. It was a constant battle of “What if”…

    Ultimately, it was a no-brainer… Both Credit Cards were maxed out, so what could I possibly use them for anyways???

    Now the challenge is just paying them off….

    I don’t think Credit Cards are bad, I just think it’s easier to “blow credit” then to “blow cash”. I constantly use my Debit card to purchase stuff. I paid out $200 the other day without the bat of an eye… Then I had to pull out $40 to pay cash for something, and that stopped me in my tracks, why was I going to blow $40 on something I didn’t need??? (Of course the $200 purchase was stuff I really didn’t need.) Unfortunately perception plays a large role in this, and I’ve been struggling with trying to change my own perception on this for years…

  35. I spend on my credit card based on my categories. And yes, with the amount of travel I do, the rewards ARE worth it. In addition, my bank charges foreign currency and ATM fees when abroad. That is one of the things my Premier Traveler card eliminates. It also eliminates the need to carry large amounts of cash in foreign countries.

  36. Maybe, but it would take a minor amount of work that feels like a major amount. Husband’s chequing account and credit card are with the same bank, and the chq charges per transaction after so many per month. We’ve also got accounts at a credit union with unlimited transactions, but one of our debts and the car insurance both automatically come out of the bank account each month. If we moved the automatic payments to the credit union and shut down the bank account, we could probably do without the cc, as well.

    Until then, we use the card on-budget in YNAB and pay it off every couple of weeks to avoid the per transaction charges on the money in the bank account. Also, it’s useful for online purchases (I don’t know if Visa/MC backed debit cards aren’t a thing here in Canada, or just not thru the credit union). Theoretically there are points, but we haven’t used them since I came into the picture a year ago. I’m not convinced this particular card is worth its appalling annual fee, but I think a card with better fees would be worthwhile, as long as we continued to only spend what’s in the budget.

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