With me “credit” is (almost) a dirty word. I don’t take out loans. I don’t use credit cards. And (shocker here), I’m perfectly happy! I’m not the only person I know who stays away from buying on credit either. And interestingly, those I know living cash-based lifestyles tend to be the happier folks financially — less stressed out, fewer bills to worry about, less buyer’s remorse, etc.
Now I’m not going to say that a cash-based lifestyle is for everyone, and I don’t judge anyone else in a negative light because they choose to finance things. It’s just not for me. And given the state of the economy and how many people got in way over their heads in part because they couldn’t manage credit, I’d say it’s not for a lot of other people too. So today let’s look at the other side of the coin — surviving without credit, and why it’s not as bad as some people make it out to be.
People tend to give the same few reasons for why they think credit is a great thing. And not a single one of those reasons applies to everyone, including me. Here are a few:
1. Credit cards and loans give you more buying power. — To that I say, not everyone should really have more buying power. What happened to living within our means and buying what we could actually afford to pay for? That’s precisely the mentality that leads to people charging more than they can handle or buying more of a house than they can afford to pay for. Is that true of everyone? No. Some people are incredibly responsible with lines of credit. And to them, I say go for it! But sadly many are not. And they’re the ones who should re-think this reasoning. Personally when I want more buying power, I find ways to make more money. I do more than fairly well for myself and I can afford most things I want. I know not everyone is at that level right now. But I wasn’t always either. It comes down to determination and hard work, but once you get there, you might never want to look back.
2. Credit cards are convenient. — To that I say, so is your debit card. A cash-based lifestyle doesn’t mean you have to physically carry cash around with you. It just means you only spend money you actually have.
3. Credit cards are an emergency funding source. — To that I say, try building an actual emergency fund instead. You’ll be amazed at the peace of mind that comes from knowing you could get by for several months or more even in a worst case scenario like a medical disaster or losing a job. And your real emergency fund won’t charge you interest when times are already tough.
Like I mentioned, some people can responsibly use credit, and they choose to do so. And there’s nothing wrong with that. The cash-based lifestyle that I prefer is just one option. And there are plenty of misconceptions about that option that I feel drive some people away before they really get to understand it or try it for themselves. Here is the biggest misconception I’ve come across:
You won’t be able to afford anything, or what you can afford won’t be nice.
Not true. I know someone who’s paying $400 per month for their car payment. My cars are paid for in full — I’ve never paid a car payment in my life. That means I have hundreds of dollars in my pocket each month that she doesn’t have (meaning while her “extra” money goes to the bank to pay down the car loan I can afford to save it, buy play tickets, take weekend trips away, etc. that she would love to do but can’t). But we both have cars that we love. Given, mine’s much older, but she’s in pretty good shape and has years’ of life left in her I’d say (I’ve learned not to be the kind of person who abuses their car or who insists on having a new one every few years just to say I have a new one).
When it does come time to buy another car, I don’t plan to finance that one either. A friend’s boyfriend recently said to me that he wouldn’t want to do that because he wouldn’t want to be stuck buying a “beater.” And there’s the misconception for you. He assumed that paying for a car outright meant I’d have to buy crap. But no…. I’d simply save enough to buy the car I want, and pay for it without interest accumulating. If you plan ahead, you can buy any car outright that you would otherwise buy through financing.
Frankly I can afford to do just about anything I want with my time, while many of my credit-reliant pals cannot. It goes back to putting the emphasis on making enough money to live the life you want rather than relying on someone else to lend you the money so you can buy now and pay later. When you do that, you run the risk of “paying” for the rest of your life.
Now look. I know I’m “lucky” to some degree because I make a nice living and can afford to do the things I want to do. I know not everyone is in that same place right now. But I was in their shoes at one point too. I remember when credit cards had to cover basic expenses when I graduated and was looking for work (lousy job market at the time where I wanted to work, similar to the lousy job market now). And I don’t begrudge anyone the ability to do what they need to do to get by in the short-term.
But no matter how tight things seem now, there are small things you can do to get you on a more self-reliant path where you don’t have to rely on banks for financing all the time. If you’d like to move in that direction for any reason, here are some things that can get you started:
1. Re-evaluate your budget. — Look for ways you can trim expenses so you’ll have some money to set aside in a real emergency fund to stop relying so much on credit cards. For example, decrease your cable subscription, make sure you’re getting the most cost-efficient mobile phone plan, and plan your meals out in advance so you can take advantage of sales and coupons. Every little bit you can save now helps.
2. Build that emergency fund. — Put away any little bit you can into an emergency fund. First aim for a small emergency fund of $1000 — it might cover unexpected car repairs or something so you don’t have to finance them. But ultimately aim for an emergency fund that would cover your living expenses for several full months. This gives you a cushion if someone in the family were to lose their job.
3. Sell things you don’t need. — This can be a quick way to build a small emergency fund or get cash to pay off some of your existing debts. Plus, de-cluttering can be a relief in itself.
4. Look for part-time work. — If the real problem is that you don’t have enough money coming in, then start there. Take on part-time work, even if just for a few months, so you can get those debts paid down or start saving. If a traditional part-time job isn’t realistic, consider freelancing part-time if you have any marketable skills. You can do a lot of freelancing online these days — writing, design work, programming, marketing, etc. And despite the fact that you’ll see a lot of very low paying work advertised, keep looking. There’s plenty of high paying work around too if you contact companies directly. I’d know. I make my living entirely online as a freelance writer, blogger, and Web developer. Look for freelance-related sites that can give you advice on getting started.
5. Stop using your credit cards — slowly. — If you have a lot of credit cards, stop using just one of them for now, and work on paying it off. See if you feel any better when it’s gone. If so, keep working on other cards, dropping them one at a time until you’re credit-free. If you find that you really can’t live without them, well, that’s okay too. A cash-based lifestyle is definitely not for everyone. The key is to not try to go cold turkey. It’s about replacing one habit with another.
I’m not saying moving to a cash-based lifestyle is the easiest thing to do. But for many who do it, it helps to eliminate a lot of stress and it’s more than worth the initial work. For others, buying on credit will always be a part of their lives, and that’s okay too. There is no “right” or “wrong” way as long as you’re responsible. It’s just about knowing your options and choosing the one that’s right for you.
Do you think you could ever live without buying on credit? Do you already live a cash-based lifestyle. While in general the one exception to my own personal “rule” is mortgages, I have to admit that I’d like to bypass that as well when I’m ready to leave the rental world to settle down. Have you done that, or anything similar? Share your thoughts and stories in the comments.