How to budget without credit cards
Credit cards offer convenience, security and rewards 鈥� but they鈥檙e not an absolute necessity. Some people choose not to have any credit cards at all, even though they could easily get approved.
NerdWallet interviewed two families who have stopped using credit cards. One lives in a major city, the other in a small town in the Midwest. In both cases, they鈥檝e used credit cards in the past but found that they聽were just more comfortable without them.
They talked about聽why they stopped using credit cards, how their lives have changed, and how they get by without access to credit cards.
Tahir Kelly: sanitation worker聽in Philadelphia
Before his father died in 2014, Tahir Kelly continually worked at paying off his many credit cards. He had had a Discover card since his early 20s, plus聽a fistful of store cards:聽Best Buy, Target, J.C. Penney and Macy鈥檚. But the balances always climbed back up.
鈥淵ou play footsies with it,鈥� he says, describing his relationship with debt. 鈥淵ou keep it around forever.鈥�
His father鈥檚 death was a turning point for Kelly, who drives a garbage聽truck for a private company, and his wife, Sharifa, a teacher.
鈥淗e didn鈥檛 have any money,鈥� Kelly says of his father.聽鈥淚t makes no sense for people that make the kind of money we make to聽not聽have money.鈥�
Around the same time, Kelly heard about personal finance guru聽聽from a co-worker and jotted down the name. Soon Kelly was listening to Ramsey鈥檚 popular podcast, and the couple聽took one of Ramsey鈥檚 courses.
鈥淭hat is where we got the idea of using your own money for your emergencies instead of a credit card,鈥� he says.
Now he follows a modified version of聽. The family paid off the last of their credit cards early in 2016 and closed each account as they zeroed out the balance. Even though Kelly knows that closing credit card accounts after they鈥檙e paid off might lower his credit score, he鈥檚 not too concerned. He doesn鈥檛 plan on applying for credit in the future. Meanwhile, he and Sharifa are working on eliminating student loans and repaying a 401(k) loan.
Now that he鈥檚 not relying on credit cards, Kelly聽uses dedicated savings accounts, sometimes called 鈥渟inking funds,鈥� to save up for clothing and sports equipment for his three young sons or for date night聽with his wife. Instead of feeling limited by a lack of credit, Kelly says he enjoys how having less聽debt has freed up his income.
鈥淚 find that not having credit cards, I end up having more money,鈥� he says.
Going without credit cards doesn鈥檛 mean carrying around a wad of cash. Kelly uses a debit card for most of his purchases. While debit cards provide聽much of the same convenience as credit cards, they come with their own limitations, which Kelly makes accommodations for.
For example, credit cards and debit cards both offer fraud protection. But if your card is聽compromised, the inconvenience can be聽than with credit. That鈥檚 because fraudulent purchases on a debit card take money directly聽out of your bank account, which could leave you without money while the situation is being investigated. Your account could also be聽frozen while the bank sorts things out. This has happened to Kelly: His聽debit card was compromised, and it took a few weeks to get his money back. But because he had built up an emergency fund in a separate account, he was able to cover his bills in the meantime.
Some travel purchases can also be more convenient with a credit card. For example, when we spoke, Kelly was waiting for a $75 hold on his account to clear. A hotel had placed the hold as protection in case of聽damage to the room. With a credit card, you might not even聽notice your available credit being temporarily reduced by $75. With debit, that鈥檚 money that belongs to you that you can鈥檛 use.
But Kelly considers these minor inconveniences that are worth it. He recalls the first small聽emergency he experienced after he built up Ramsey鈥檚 recommended $1,000 minimum emergency fund. The door on his car broke, and he was able to pay $500 out of pocket to fix it 鈥� without having to pay credit card interest on it for months afterward. Instead, he paid himself back by replenishing the $1,000 fund.
鈥淚 didn鈥檛 have to keep paying for this door,鈥� he says.
Kelly is thinking big. He鈥檇 like to build up a portfolio of rental properties, and even though it will take longer to do without borrowing any money, he鈥檚 determined not to take on any debt at all to get there. Buying something without credit takes patience, he says, but 鈥渙nce you have it, it鈥檚 yours.鈥�
Zo毛 Keeland: stay-at-home parent聽in聽Highlandville, Missouri
Like many new college grads, Zo毛 Keeland got a credit card for the wrong reasons.
鈥淚 got it because I was broke, and broke people really should not have credit cards,鈥� she says.聽After a job loss followed by a move, she found she couldn鈥檛 pay back the $300 she had spent on the card.
But it was Keeland鈥檚 second run-in with credit cards that made her decide to avoid them altogether.聽She and her husband used a credit card to finance an聽expansion of a 420-square-foot studio on land that he owned, racking up a $7,000 balance.聽When they missed a payment, the credit card company raised their interest rate to 29%.
鈥淚 don鈥檛 know about you, but 30% interest? I don鈥檛 want anything to do with that,鈥� Keeland says. 鈥淚 don鈥檛 even want to have credit available at that rate.鈥�
Keeland and her husband entered credit counseling in 2006 and made an agreement not to use personal credit cards in the future. Since then, she聽has thought about what she might be missing by not having a credit card, but she鈥檚 more comfortable without one.
鈥淚鈥檝e never run into anything I couldn鈥檛 do because I don鈥檛 have a credit card,鈥� she says.
She has never needed to rent a car and has no problem making day-to-day purchases or even buying plane tickets with her debit card. Her husband, who travels frequently for work, has a company credit card to pay for incidentals on the road.
Keeland says she knows her credit score may be lower than it would be if she had credit cards, because using credit cards can do much to聽. But for her, having a slightly higher credit score isn鈥檛 worth the risk of getting out of control again. Her聽score is still above 700, high enough to borrow money when she needs to.
鈥淲e don鈥檛 have problems getting loans,鈥� she says. They have both a mortgage and a car loan, and were happy with the rates they were able to get from their local credit union.
鈥淢aybe someday I鈥檒l regret not having a credit card,鈥� Keeland says. But she鈥檚 afraid that if she did have a credit card, she鈥檇 eventually find herself in a tight spot financially and use the credit card when she didn鈥檛 have the means to pay it back.
鈥淗aving a credit card is sort of like having a hole in the floor,鈥� she says. 鈥淵ou think, 鈥業鈥檒l just walk around it. I鈥檓 never going to fall in because I know it鈥檚 there.鈥� You can walk around it for years, and one night you鈥檙e going to fall into the hole in the floor, and then what?鈥�
Virginia C. McGuire is a staff writer at聽, a personal finance website. Email:virginia@. Twitter:聽.
This article first appeared at .
