Canceling all credit cardsfamily, customer adventures, finance — by TDavid @ 6:36 am PST
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After a 30 day waiting period with zero balances and no TV for a year we are starting a new conquest in our household: life without credit cards. How long this experiment will last I don’t know, but we’ve decided to give this a try. We were mobile phone free for a couple months, but we rolled over and went with a two year contract with Sprint, EV-DO, and a cell phone for our oldest son with unlimited text messages. It’s time for a financial challenge: do we need the plastic? Really?
Along the homepage left sidebar you’ll see a new day count titled “days without credit cards” which I hope will grow to be a very large number. The 30 days waiting period is required so that no outstanding charges come through while the balances are zero. I’ll reset the counter if something changes, but the meter is now running.
One thing we’re going to miss is the chargeback protection credit cards provide. Not going to miss the interest rates and finance charges. Another possibility is we might get an American Express card and just pay off the balance each month, but if we do that the count will end (no credit cards means, well, no credit cards). Since we have the VISA and Mastercard logo on our debit cards and can use our PayPal as a quasi credit card we can still pay for things as if they are on credit.
Why no credit cards?
One reason to do this is to further accelerate retirement savings. We’d like to travel more while we’re still young enough to enjoy the world. That’s not going to happen in our seventies or eighties which seem to be the new retirement ages for our generation. I’m worried that with my wife’s neck and back injury she’ll become increasingly less mobile as the years go on and I don’t want to travel the world alone. This means we need to save more now to pay for our future travel and retirement savings.
You might ask how not having credit cards helps accelerate retirement savings versus having credit cards and not carrying balances on them. Good question. In theory there is no difference, but ask yourself how many credit cards you have now and what the balances are on each? Are they all kept at zero? Do you really need more than one? We don’t but for some strange reason credit cards multiply. You start out saying: I’m only going to have one, and then a few years later you have one for this and one for that. It’s easier to just say no. At least that’s the premise for this experiment.
Historically, we haven’t been very good about keeping zero balances on our credit cards. It’s not like we charge everything, but we are paying interest charges on these purchases which is money that could be saved instead of going into the credit card coffers. We also have some scattered accounts on the web like Bill Me Later which is a great service, but instead of just paying the darn thing off when we charge something, we carry a balance and pay interest and fees. Dumb, I know, but if you don’t do dumb things financially you’re better than most consumers out there. We paid off and closed our BillMeLater account online.
So no cards means we’re more likely to have zero balances and more money to put in the retirement savings account and vacation fund.
Creating your own credit account
We’re going to buffer some money for credit-like purchases for ourselves. This way we can still tap into larger expenses and emergency funds without needing any credit cards. We’ll need to keep a higher balance in our money market account for such purposes but we won’t pay any interest on the purchases which seems like a very attractive option.
Cash back options and fee elimination
The PayPal debit card pays back 1% on all purchases, so we can divert online bills to this and give ourselves a 1% discount on every purchase instead of a 10-20% finance charge. I’ll admit being slightly concerned about the downtime that Matt Cutts mentions but pingdom shows PayPal having better uptime than most sites.
Another thing we’re trying to analyze is the amount of monthly and annual fees we’re paying. Only one of our credit cards didn’t have a yearly fee. Why are we paying fees? Another thing is our banking. We are consolidating money into fewer banks so that we can carry higher balances and enjoy no fee checking. One of our banks, a great local bank, has been charging us $10/month for years. Why? Sure, we get free checks and other perks including the ability to cash large checks with little to no holding time, but why fees?
ATM fees are another thing to analyze. If you need cash and can’t walk into the bank or use a credit union, you’re pretty much screwed with ATM fees. Try to get cash during bank hours or only from ATMs that have the lowest transaction fees.
Avoid credit card temptation, get off opt-in lists
Zeroing out balances and closing existing credit card accounts isn’t enough when your mailbox will fill up with tempting offers. Fortunately, consumer savvy Clark Howard shows the way to get off those annoying pre-approved credit card offer lists:
The telephone number, 1-888-5-OPT-OUT, was set up to establish a single point of contact for consumers to call to request that all three major U.S. credit bureaus (Equifax, Experian, TransUnion) remove consumers’ information from the marketing lists and pre-approved credit offer lists sold to third parties.
I’m curious if we make it a year or more how positively this will impact our credit scores. Our only loans right now are our home (a little over 10 years left on the mortgage), a lease for our 2005 Saturn Relay (ends late 2008) and two lines of credit for our offline business that will be paid off within 4 years at current amortization.
Time to turn the questions to readers. Feel free to use your blog (or start one if you don’t have one) to reply or the comments section below. How many credit cards to you have? Do you keep them at or near zero balances? If you have more than one credit card for home and business. Why?
Quitting credit cards feels a bit like giving up chocolate. They can have the credit cards, but will have to pry the Kit Kats from my cold, dead clutches.
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I’m not sure that I understood giving up TV, but I can understand why you want to ditch the credit. Credit cards make it too easy to buy junk. It’s a good way to overpay for a lot of things.
The one downside to this sort of experiment though, is that there could be negative repercussions on your credit. For some lenders, having no credit is just as bad as having poor credit. Rather than canceling each account, you should consider just throwing the cards away instead, that way you keep the credit open, but it’s still just as much work to spend the money, as it would be to get a new card.
Comment by Davis Freeberg — June 21, 2007 @ 7:11 am PST
You must have misunderstood Davis, we’re not “ditching credit” — we’re ditching credit cards.
We still have credit accounts, so we’re not throwing out all credit as mentioned in the third to last paragraph, we just don’t have any more credit cards — or won’t rather after the 30 day waiting period when the accounts are officially closed (the process has been started though). If having no credit cards negatively impacts our credit scores (will be interesting to learn if that’s the case), I wonder why? Isn’t that a bit backwards? We have credit lines and loans so we are clearly demonstrating we are still able and willing to payback debts. And we don’t have any intention of canceling our credit lines, so we still are using credit — just not credit cards
As for the TV experiment, there hasn’t been much to miss there. When I first saw somebody else trying that — Jeremy Zawodny — I thought it was a bit wacky too. Jeremy was a single guy at the time (not sure if he still is) so that seemed like an easier challenge than an entire family quitting TV. We made it a year though and our lives haven’t been that empty without it.
What are you watching on TV that you couldn’t get elsewhere?
If you say live sports, I’ll give you that one. NFL season has given me the worst withdrawal symptoms to date. I enjoyed watching the Mariners on TV, but I like listening to sports on radio. Generally speaking, TV swallows time that would be better spent elsewhere. Would rather use that time doing something interactive (video games, trying out new products, taking a long walk AFK, etc0. And a lot of the shows we like (like 24) are available online from the websites from the source legally, so while you can’t get them in HD quality yet, you can still follow them online if you like without the extra monthly expense, albeit at a lower quality.
With TV shows I’ve come to prefer buying the full seasons on DVD — those that are available anyway — and watching the episodes back to back so I can better follow the character creation. The week or more in between shows can be a bit distracting. Plus $25-35 for an entire tv series versus $15-$20 for a movie on DVD is a good deal.
Comment by TDavid — June 21, 2007 @ 7:28 am PST
I’m glad to hear that you are just ditching CC’s instead. Those little plastic things can get you into a lot of trouble. I’m not sure why it hurts a FICO score if you don’t have enough credit, but I know that lenders like to see that you can borrow a little money and pay it back consistently. If you’ve got your credit maxed out, I’m sure it looks a lot worse than not having the card.
I keep three credit cards on file, but really only use one. Every 6 months, I’ll call them up and start bellyaching about the interest rates that they are charging. For a long time, I kept getting lower and lower rates, but last time they started laughing at me when I was complaining about being under prime. These rates can still change, but if someone is carrying $10K of debt, you can save $500 a year by being a bit more vocal with your credit card companies.
I think the thing I’d miss about TV is the randomness and variety that it provides. I watch a lot of DVDs on Netflix and agree, that is a better way to watch TV, but for shows like Survivor or The Family Guy, I enjoy seeing those over a season instead of all at once. I also like checking out new shows, without having to use one of my 3 weekly DVDs to see junk. I don’t mind sitting through a half hour of garbage, but don’t want to have to wait three days before seeing another movie.
I’m sure that it would be a lot easier for a single guy to do this than a family. I was a little surprised that no one protested. I don’t think I could quit cold turkey like that. Cable TV can be pretty expensive, but if I didn’t have it to distract me, I’d just end up spending more money going out or on gadgets. At the end of the day, the extra money is worth spending to me, because I end up with a decent bargain for the number of shows I get to watch.
Comment by Davis Freeberg — June 21, 2007 @ 8:12 am PST
You could, technically, keep the count running while having an Amex - an Amex is a /charge/ card, NOT a credit card. Fundamental difference in their repayment requirements, but you get to keep the purchase protection.
And no, I don’t work for Amex, etc…
FWIW, I carry a single card, and I got it to bolster my credit score (it did). I use it almost daily, and pay it off in full each month - I get better points on it than I do on my debit card; I’m effectively using it AS my debit card, as I sometimes make transfer payments to the card more than once each month.
G.
Comment by Gary Slinger — June 21, 2007 @ 1:50 pm PST
Geez. Talk about extreme. Why not start out small? Start paying off all credits cards and maintain a zero balance. This will help you avoid spending money on less crucial items (i.e. toys and other gottahaveits). Then reduce the number of credit cards.
I think you would be surprised to find how much better you can control your finances if you take those simple steps.
I’ll use myself as an example and will tell you that I use no more than 2 credits cards (only 1 is active at a time - I rotate for the hell of it), always maintain a zero balance, and invest a considerable amount of my paycheck into a 401k and additional savings. On average 40-44% of my salary goes toward the future (savings). The less liquid cash you have, the more likely you are to spend less… because you have to pay off your balances at the end of the month.
I won’t ever get rid of my credit cards for a few reasons - it’s easier to carry than cash, safer (less stuff for people to lift off you and general financial protection), offers better visibility into what you are spending your money on, most cc offer some type of purchase protection, and many times more convenient than cash. I only carry at most $40 on me at any point in time - and I try my best to replenish the cash no sooner than every 2-3 weeks. I purchase everything with my cc. Cash is way too easy to spend and lose track of. I would never ditch my cc… and at the same I would never carry a balance over.
Food for thought…
-Maurice
Comment by Maurice Prather — June 21, 2007 @ 6:35 pm PST
Gary - thanks for the feedback. AMEX might be the way to go to get the best of both worlds.
Hi Maurice - we aren’t going to be carrying around a bunch of cash
No way! LOL, that would be extreme. I usually carry around less than $30 in cash and my wife only a little more. Follow the link to the PayPal Mastercard post (1% credit back on all purchases). We don’t think we need the plastic (credit cards — not debit cards), so why have them at all? Having a bunch of open, unused credit lines isn’t doing any good. We have two credit lines we can access for emergencies.
If having no credit cards impacts our credit rating negatively as Davis suggested then that would be a good reason to bring back one card at a later date. Also there is the matter of chargeback protection, but AMEX could be a good solution for that.
Lastly, you used yourself as an example but didn’t offer if you had a family or were a single guy? Our food bill for our family of five is probably more than a single guy eats in three months and that includes if he eats out every day lol. Ever seen how three teenage boys eat?
Bring on the tractor!
Comment by TDavid — June 21, 2007 @ 9:04 pm PST
Oh, and by the way, the credit card balances were all zero before I wrote this post. This was something we decided to try for awhile and see how it goes. I still plan to buy the same amount of toys and gadgets — and my wife will be doing her online shopping — mmuch as before. Spending habits won’t change that much, I don’t think, just the method of how we’ll be paying for things.
That’s the plan anyway. Not saying all things will go as planned. It’s an experiment, not an absolute
If you asked me if we’d make it a year without TV a year ago I would have bet against it. I’m a little more confident about staying away from credit cards.
Comment by TDavid — June 21, 2007 @ 9:14 pm PST
Ooops, I responded to your previous post before I noticed this one… Anyway, I’d recommend trying the “zero balance” approach.
Dede & I have, for nearly 10 years, used our Citi Dividend Mastercard for nearly everything. From gas to groceries to tacos, almost nothing’s too small to charge and it all adds up towards cashback dividends points. But we never, ever carry a balance, so we’re not charging anything we couldn’t just as well buy with a check or cash.
We do have another dividend-earning card that we switch over to once the Citi Dividends have paid out all for the year that they’re gonna, which is a max of $300. The exception there is that we prefer the Citi card for travelling since it offers better protection and a better foreign currency conversion rates - something we hope to be making use of in Moscow this Summer! (Keep an eye on our Russian Adoption Journal for upcoming news on that!)
Comment by Rob O. — June 22, 2007 @ 5:06 am PST
To answer your question: The stat of 40+% savings lock is based on a single livelihood. At the time, I did eat out everyday and a I rarely cooked at home. I’m trying to cut back on costs even further by spending more on groceries rather than dining out.
If you are going to explore the option of credit cards vs. debit cards, I would definitely look into the protection clauses. When I last compared the two (a few years ago), debit cards were not nearly as secure as credit cards (i.e. in the event of a loss, there was little means to reclaim all fraudulent charges). Credit cards by far had the best consumer protection with minimal financial impact.
Also Rob O. brings out a good point… I consider dividends as an additional source of income… as small as it may be… both my AMEX and REI Visa cards provide returns each year. It’s nice receiving $200-400 back each year.
Speaking of experiments… I lived without a TV for 3 years (no tv at home, but occasionally watched a college game at friends). Then Halo forced me to buy a 36″ Wega. I also went nearly a year with no phones (other than the one I had at work) - if you needed to contact me, you had to a) knock on my door, b) send email/IM or c) relay a message via a friend.
Comment by Maurice Prather — June 22, 2007 @ 10:24 am PST
Maurice - see paragraph 3 in post: “One thing we’re going to miss is the chargeback protection credit cards provide.”
Definitely well aware of those protections and that’s a value that non credit cards don’t have. Also intrigued by the dividends prospect you guys have mentioned. We receive money back when we shop at places like Fred Meyer, Best Buy and Costco already through their Rewards clubs but other than frequent flyer miles, none of our credit cards ever paid back dividends. We must not have shopped around for the best type credit cards.
Comment by TDavid — June 22, 2007 @ 10:50 am PST
I respect your decision regarding credit cards but wanted to offer some thoughts on why this might not be a winning idea for everyone.
From my own experience:
- I’ve earned several free roundtrip airfares to Europe *and* within the U.S. due to my credit card spending (purchase points). In fact, with my Citibank cards (I recently switched to the Premier Elite), I’m already eligible for a free rt airfare to Europe with no blackout dates after using the cards for about a year and a half.
- American Express reimbursed me in full when a camera I purchased on their card was stolen two months after purchase (Purchase Protection).
- Citibank efficiently protected me when a company I bought a computer from refused to replace a defective system under warranty.
- In the month of May, I was able to enter several popular area museums for free with my Bank of America card.
- When traveling in Australia, showing my HSBC card got me 15% off at several attractions.
I think the key is using cards responsibly. In the aggregate, I believe, credit card companies screw over consumers by charging horrid interest rates on remaining balances, by charging nasty fees for paying 2 hours late, and so on. I know, because I’ve been on the receiving end of this nonsense. But I cleaned up my act, and now I make credit cards work for *ME* (and I damn well never accidentally forget a bill anymore!) :).
Comment by Adam — June 26, 2007 @ 10:54 am PST
[…] We also purchased the four year extended warranty ($250) for the TV and a 900 watt UPS tower with surge protector ($179). The total bill with tax ran just under $2,500. None of this went on credit since we’re still in the midst of our no credit cards experiment. […]
Pingback by Wow 1080p, yowsa! » Make You Go Hmm — July 18, 2007 @ 5:37 pm PST
I was also recently given the “priviledge” of an upgrade to a World card. My experience however, was not positive, in that I told the customer service professional that I did not want the upgrade. Even though I HAD NOT ACTIVATED THE NEW CARD, the cold voice on the other end stated I did not have a choice. I then went up the ladder so to speak, finally getting a supervisor who stated the same.
A few weeks later, I received a notice in the mail stating my request for “downgrade” was denied. When I called and asked why, the CSR told me that because I had activated the card, I could not downgrade. I told her that I had activated the World card because I’d previously been told I had no choice.
I’m one of those people who don’t carry cash, and pay everything with one card. Yes, it’s a hefty bill, but that includes house, utilities, groceries, gas, etc., so it’s a real benefit.
After the way I was treated, I called corporate office, and sent two emails asking why this program was in the place and complaining about the way I was treated. Of course, no response.
Now, I’m going to cancel the card, because while it’s nice to receive benefits, none of us like to be treated like a number. Or ignored.
On a positive note, my AMEX platnium has been great to work with, and if you spend enough and call, they will waive the annual fees. Plus, you get to speak to people in the States. You can actually understand their CSRs! Pass it along - World card sucks.
Comment by Tavid — September 1, 2007 @ 7:48 am PST
I never use a credit card. I do have a debit card, but will never purchase something with money that I don’t have in the bank.
If I want a new toy really bad, I have to wait and save up for it. It’s a pretty simple way to live, and keeps me out of trouble.
Comment by Kevin — November 28, 2007 @ 8:31 am PST
I’ve never been a fan of the credit cards. Personally, I use them only for Internet purchases of virtual goods since I have not any other choice in this case. I suppose it should not be very hard to stop using credit cards having in mind that the people from the majority of countries in the world still do not use them. But then again, maybe it won’t be so easy for people that have used them since forever practically.
Comment by Ivan — December 3, 2007 @ 3:54 am PST
Credit cards are the worse form of credit. A wise choice to ditch them, iv lived without mine for 3 years now and I don’t miss them one bit…..Although a lot of the ATM’s in the UK charge a higher rate than some of the credit cards so it makes you wander if it would be cheaper to just pay by card!
Comment by Steve — January 23, 2008 @ 12:37 am PST
[…] we started an experiment to cancel all our credit cards 232 days ago several people warned that this could negatively impact our FICO credit scores. This […]
Pingback by Credit score up 38 points 232 days after canceling credit cards » Make You Go Hmm — February 9, 2008 @ 7:26 am PST