Here are some ideas for living a credit-free life,if that appeals to you (if it doesn’t,skip this article and don’t start a debate in the comments!).
- Save an emergency fund. Many people use their credit cards as a sort of emergency fund — if there’s an unexpected expense,the card comes out to the rescue. Instead,use the money you aren’t paying towards debt to build up a healthy emergency fund,keeping you out of debt when something unexpected comes up. Living without credit can be risky,but having a strong emergency fund (aim for $1,000 initially,then build it up to 3-6 months or more of expenses).
- Save for goals. Once you’ve got the emergency fund adequately covered,you can start saving for other things. Set savings goals for yourself:do you want to travel,or buy a car,or save for college,or renovate your home,or buy a yacht? Decide on your highest-priority goals,and set a dollar figure. Now save towards those goals. Without debt,it should be fairly easy.
- Get a debit card. If you need to use a credit card in certain situations,such as buying something online,often you can use a debit or check card instead,if it has the name of a major credit company such as Visa or Mastercard. I went several years without a credit card,but using a Mastercard debit card,and had no problems at all. It actually worked every place you would need a credit card,but I wasn’t buying stuff on credit — it was debited straight from my checking account,meaning I would need to have the money first before purchasing anything.
- Earn interest instead of paying it. The problem with debt or credit is that you waste money paying interest. It eats away at your finances. Instead,make your money work for you by investing it. With the magic of compound interest,your investments will grow over time,meaning that money you would have been paying toward interest is now earning interest instead and multiplying. That’s good math.
- Buy a car on cash. For those who have been buying vehicles with auto loans all their lives,it may seem impossible to buy a car on cash. But it’s very possible,and many people do it. My grandparents,for example,always buy their cars with cash (and always have,except for their first car 50 years ago). So instead of making loan payments,and paying double the price of the car or more over the term of the loan,they make savings deposits,and end up with the amount it costs to buy two cars in their bank account over the course of five years. This is something I’m trying to do myself — I’m going to use my current car as long as possible,save the amount that I’m now paying for my loan every month (it’s almost paid off now),and then buy my next car in cash. It’ll be a used car,but it’ll be all mine.