Life without credit can easily translate to a life without debt, so why complicate things with credit cards, credit scores, and insane interest rates that drain us like gigantic leeches? The first credit card was invented in the 1950s, and the concept of credit scores was non-existent before 1989. Nonetheless, human beings roamed the earth and thrived financially. If you look at your fore-fathers, you can easily deduce that their lives were much simpler and affluent than yours. You are more educated than them, you work more hours, and perhaps you don’t even support a family, and yet you are drowning in debt.
Necessity, Necessary Evil, or just Evil?
The person who first came up with credit system probably sold their soul to the devil (or got possessed by a shrewd demon) because credit cards and credit score have become the ‘necessary evils’ of this era. Let’s be honest, the whole concept is preposterous and yet is has taken control of our life. The shiny plastic may have its appeal, though cash still rules. If you have enough cash, you don’t need any credit to get work done, so we have a clear winner.
People who have adapted to the credit system call it a necessity, particularly because they don’t see a way out. Once you are part of the FICO club, you are pretty much trapped. You have to use credit and pay it off to increase your score or maintain it – it’s basically a never-ending cycle. You cannot just get a credit card and then never use it because that would be pointless. The bank/credit card company will eventually close your account and that will affect your FICO score; you also become more susceptible to credit card fraud.
If you think about it, credit cards are more of a privilege rather than a need. A person who calls themselves frugal is going to save up money they have earned, rather than depending upon borrowed money that will convert into growing debt. Keeping a few credit cards as Plan B, C, and D is just the easy way out, and it has not so ideal consequences. I agree that cards are a lot more convenient than carrying cash, but there you have the option of ‘debit cards’.
Debit vs. Credit
The debit card is the superior and most reliable of all plastic money because it is truly yours. Unlike with credit cards, debit cards do not borrow you money that is supposed to be returned with interest. The logic is simple – use your own money through debit cards and forget about implications of good or bad credit. Credit cards spoil us, and that’s the perfect excuse for lenders to take advantage of us. They mint mountains of cash by stealing our heard-earned money through imposing extravagant interest rates, which keep going higher when we don’t pay back the borrowed money in due time.
The longer we take to pay off the debt, the more we pay in interest. If you didn’t realize this before, it is high time to acknowledge the scam.Another reason for being so dependent on credit is the clever advertising by banks and credit card companies. They demonstrate the system as a life savior because you have virtual money to spend at all times. For instance, you may encounter an emergency at a time your paycheck is entirely depleted, so what do you do? You swipe your credit card and all your problems disappear! All that sounds good, but that’s nowhere near the whole truth. Credit cards resolve money problems temporarily, but create bigger financial dilemmas later on.
Credit discourages Budgeting
If you ever talk about your money problems, your elders and friends have probably bestowed you with countless mini-lectures on the topic of budgeting. When you establish a budget, you train yourself to be thrifty and say ‘no’ to buying things you can easily live without. Shopping malls and Ecommerce platforms are constantly begging you to buy stuff that is disguised as ‘once-in-a-lifetime bargains’. Even though a cute pair of flip-flops was only ten bucks, you didn’t actually need it and you won’t stop there. You will be enthralled by many more analogous items and the costs quickly add up – suddenly you bought 20 unnecessary items that raised the bill to $249.
When you don’t have a credit card, it becomes easier to fight urges of superfluous spending. If you have your credit card with you at all times, you will find an excuse that justifies every itch to overspend. You will convince yourself that splurging a little is okay and it won’t hurt. When you have credit to pay for all your whims, the need to budget won’t cross your mind (or you will choose to purposely ignore it).
How will I buy a House and Car?
The more important question is that do you really need to buy a house and car? Owning real estate and driving a shiny expensive car seems like an in-built dream for some reason. Many Individuals and families mortgage property around their thirties and continue to pay installments till the end of their lives; let us not forget about liabilities associated to property taxation andtransfer. Having your own motor vehicle has several advantages, but it also a hassle if you consider the outrageous city traffic, high insurance fees, and ongoing maintenance costs.
If you are part of the lowest taxable income bracket in your country, you’re better off without making huge investments you cannot keep up with. In case you become temporarily unemployed, or encounter some unanticipated expenses, paying off your loans in a timely manner will become impossible. Once your debt builds up, your credit score will fall; consequently, your insurance and interest rates will surge. If you absolutely need to get your own house and car, you can still make that happen without a credit score.
Having no credit is better than having poor credit, and you may qualify for low interest rates if you possess a decent financial record. The best option is to issue a big down payment. If you pay 50% or more of the property’s worth in advance, the seller/lender won’t care about the lack of a credit history. You can provide evidence of a handsome and steady income to close the deal on favorable terms. If a large down payment is not doable, there are other alternatives as well. You may apply for a FHA (Federal Housing Administration) loan, get a co-signer (someone with good credit score), or go through an underwriting process with a co-operative bank/lender.
Benefits of a Credit-free Life
Credit cards can get denied, but good old cash never lets you down. You can simply carry as much as you need and not worry about digital fraud. Credit cards get hacked all the time, their information gets stolen, and they are easier to lose. When credit is not in the picture, you are motivated to create a budget and stick to it because you understand that you cannot spend more than you earn. When you buy something, it is completely yours because the money you used was yours. When you make a purchase on your credit card, you owe that sum and more to the lender.
The times you plan a big purchase, you start saving money for a big down payment or paying in full. It doesn’t sound promising, but it’s surprisingly satisfying. You won’t be stressed about loan payments all the time, and if you run into an emergency, your savings will help you recover without accumulating any debt. All the money you save from not paying high interest rates on everything can be used to fulfill your wildest dreams. A life free of debt is the definition of true freedom, since you don’t owe anything to anyone.
Sometimes, life runs out before a person can pay off all their debt. If something like that happens, it is their family who has to pay up. All your worldly assets are seized by probate court, and then liquidated to compensate creditors. You can safeguard your estate from contesters and transfer assets directly to your heirs through comprehensive estate planning.
You can live without credit cards and thrive financially without a FICO score if you are willing. When you’re living a life void of credit, it may require more time and patience to achieve your goals (but of course, slow and steady wins the race). The credit system might speed up things for you, but it’s far too complicated and it brims with pitfalls. People tailor their lives to the credit system to gain financial stability. Credit allows them to have things they cannot buy with their regular income, thereby generating debt. When debt grows exponentially and there’s no hope for salvation, people file for bankruptcy.
While bankruptcy may erase most of a person’s debt, it is bad news for their credit score. Following bankruptcy, the FICO score slumps to a new low and bouncing back is no easy task. Bankruptcy remains on the credit report for 7-10 years, and filers have to give up credit privileges until they redeem themselves. It becomes increasingly hard to get approved for a loan after filing bankruptcy; if you do, the conditions and interest rates are too ridiculous. People obtain a secured credit cardand reorganize their finances to improve their credit score over time. You can sidestep all this trouble if you never sign up for credit in the first place.