July 15, 2022

Not Using Your Credit Cards Anymore?

Eric Bank
Former Citadel Director of Business Analysis

The decision to stop using your credit cards has its benefits and drawbacks. Perhaps they’re gathering dust on a shelf or lying in a landfill after you cut them up. The impact on your spending is the same: Paying with cash, checks, or a debit card avoids credit card debt. For some, this reflects a responsible attitude toward living within your means. For others, it could be a needless gesture that compromises your lifestyle. Let’s see where you fit in.

Benefits of Retiring Your Credit Cards

Shopping without credit cards forces you to use cash. To handle online shopping, you can use a debit card. There are two types:

  • Bank debit card: You must have a bank account to get this type of debit card. Using it has the same effect as paying by check in that it draws money directly from your checking or savings account. A debit card has a 16-digit account number, expiration date, and PIN, just like a credit card. You can swipe it on the checkout line and enter your PIN, causing the purchase amount to be instantly removed from your bank account balance.
  • Prepaid debit card: Very similar to a bank debit card, except that each card has its own account to which you add cash. No bank account is required.

When you don’t use a credit card, you must tightly budget your spending lest you run out of money before your next paycheck. That’s a commitment to living within your means, avoiding credit card debt and the damage it causes if you default on it, and ensuring you won’t be hit with late payments or overdraft fees. Indeed, you won’t be paying credit card interest or any other costs associated with credit cards, such as annual fees. That leaves more money for other things.

Drawbacks of Retiring Your Credit Cards

When you mothball or cancel your credit cards, you face the following consequences:

  • You lose the flexibility to make purchases and then spread out the payments over multiple months. This can crimp your lifestyle by not allowing you to finance big-ticket purchases such as appliances, vacations, furniture, etc. You must wait until you save up for these purchases or take out a loan to pay for them. The latter means you’ll end up paying interest, forgoing one of the chief benefits of not using credit cards.
  • Your credit score may suffer. If you close your credit cards, you reduce the average age of your credit accounts. This can hurt your credit score, although the impact won’t be substantial. Avoid this by stowing rather than canceling your cards. 
  • If canceled, your credit cards won’t be a source of cash advances to handle emergencies.
  • You won’t earn credit card rewards on purchases. These take the form of valuable cash-back, points, or miles.
  • You won’t be able to use credit cards to build or rebuild your credit score through timely payments. Paying on time accounts for 35% of your FICO score.

The choice is yours, but it’s not earthshaking either way, and you can reverse your decision later. If you decide to retire your credit cards, putting aside an emergency fund you can tap as needed is even more critical. 

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