Credit has become such an important part of our financial system, that many are bewildered by that rare breed of people who choose to live entirely within their means. And living without credit isn’t always easy. While others are jetting off on credit-driven vacations, or getting swish houses, cars, and phones on credit-based payment schemes, the credit-free crowd must diligently save up lump-sums to get these things outright. But living without credit is certainly not an impossible thing to do. If you’re clever about it, it’s not even very difficult. And it brings its own rewards…
We’ll start with the good news. And there’s quite a lot of it!
No debt! This is the major and overwhelming advantage of being credit-free. If you only ever spend money that’s actually yours, you have zero chance of running up nasty debts. Even if you think you can financially handle credit debts, a lack of debts still comes with considerable advantages. It makes your finances much simpler if you don’t have to be constantly remembering payments to various credit agencies, and it removes a major source of hassle and stress. It’s in the course of sorting out unmanageable debts that many people stop using credit – and the majority of these people experience such a reduction in stress that many of them never go back to their credit-crunching ways!
No hidden costs. Hidden banking costs tend to be related to credit – as it’s in the process of giving credit that they can weave well-concealed agreements and regulations in which manifest as more money out of your account at the end of your month. If you’re only using your own money, it’s far harder for banks and financial agencies to justify taking a cut. After all, if all you’re doing is storing your money in the bank, there’s not a lot they can charge you for. Quite the opposite, in fact…
Interest. If you’re not using credit, you’re not using an overdraft. And if you’re not using an overdraft, you can’t go overdrawn. And if you can’t go overdrawn, your balance will always be in the black. And balances in the black get interest, because the bank ends up borrowing from you, rather than vice versa! The amount of interest you get on your money admittedly depends on the amount of money you actually have, but it’s still nice to have the bank paying you for once!
And now for the cons. Life without credit, while in many ways simpler and less stressful, also has its drawbacks…
No credit history. You’d think that a history of only ever living within your means would imply that you’re a pretty reliable prospect, financially speaking. However, if you do need to get credit one day, you’ll find that a lot of agencies look askance at a blank credit history. The sad fact of the matter is that most financial institutions make their money by charging people interest on loans, and someone who likes to spend only their own money isn’t a likely profit-making prospect for the big financiers. You can easily obtain a quick and flawless credit history by getting a ‘starter’ credit card, making a few purchases, and paying it off, but it’s still a point which needs some consideration before you go credit-free.
Only lump-sum payments. Most people these days make big purchases via credit. If you’re not using credit, you can’t pay for things in installments. You’ll have to save your money and buy everything upfront. Quite how easy this will be depends a lot on how much you earn – but it’s worth noting that the majority of ‘ordinary’ people who live credit-free have to do without a lot of the splash-out, big purchases made by their peers. This is especially pertinent when it comes to housing. You have to be very rich indeed these days to afford a house outright, and getting a mortgage requires you to dip yourself into the murky waters of credit…
- No ‘safety net’. If you find yourself in an emergency, with an empty bank account, and no credit card, you really are stuck. Credit cards do provide a handy way of making emergency payments, even when you don’t actually have the necessary money.