Life without a Credit Card

I was born in New Delhi, India. During the 1980s, while I was still in India, like 99.9% Indians, I did not have a credit card. Diners Club International offered their credit cards by invitation only to rich people, which could be used only at 5 Star hotels and select high end restaurants and shops. At that time, most Indian banks used to operate with paper ledgers and I could only go to my home branch to deposit or withdraw money. Needless to say, there were no ATMs. Most people used to get their monthly salary in cash, and 99% of the economy was cash based.

The cash economy offered some challenges as one must have sufficient money in the wallet while shopping, however as a bonus, one could never indulge in impulse buying. Shopping was always pre planned, and we would rarely buy anything extra. Sometimes, when people would run out of money, the local shop owners would allow a small informal credit facility without any paperwork until the first date of the next month, as everyone used to get their salary on the last working day of the month. And, on the first date of the next month, all credit must be paid in full, otherwise the person will not get credit anymore. This informal credit scheme and cash based economy prevented people from accumulating too much consumer debt, and most people used to live within their means.

Another challenge was to withdraw large amounts from the bank and safely carry it to make big payments, due to concerns of theft or snatching. The biggest challenge was carrying enough cash during vacation as what would happen, should one run out of cash on a vacation, as one can withdraw money only from the home branch of the bank. I remember an incident from the late eighties — I went to Shimla, the summer capital of India during the British Raj, with my wife when we almost ran out of cash. On the last day of the trip, after paying for the return bus fare, we went to a small coffee shop and ordered two cups of coffee. On checking my wallet, I discovered that I had only 5 Rupees (about 0.5 dollars in those days), barely sufficient to cover the cost of the coffee. As I was worried that I might need that money during our bus journey, we quickly disappeared from the coffee shop before the server could bring the coffee to our table. During the 10 hours long bus journey to Delhi, we did not have any money to buy snacks or food; all we could afford was two cups of tea.

In the early nineties, some banks started offering credit cards to the general public, however, I did not get one as very few merchants accepted credit cards, and some even charged a surcharge of 2–3% to use credit cards.

In 1997, after I moved to Canada, though I wanted to live the lifestyle without the credit card, however I was advised by my friends that without a credit history, it would be very difficult to get a mortgage for buying a home. Initially, my bank refused to issue me a credit card. After six months, TD bank agreed to issue me a credit card with a $500 monthly limit against a security deposit of $500. Often, I used to make a payment even before I received my monthly credit card statement so that I didn’t run out of the credit limit. Within a few months, the bank increased the credit limit to $2,000, and soon I had several credit cards with limits upto $14,000.

Are credit cards bad?

It depends.

If you can control impulse buying, and pay off the entire balance when you receive the credit card statement, credit cards are not bad; they are good. When you use credit cards, you don’t need to carry large amounts of cash and you get a consolidated statement of all your prchases at the end of the month. In fact, you may end up getting free money (cash back) or rewards just by using your card to make regular purchases, which you anyway need to do whether you pay for those using cash, debit card or credit card. I get back about $500 every year by using my cash back credit card. I have never carried any balance on my credit cards. I always pay the credit card balance in full the day I receive the credit card statement, therefore, I have never paid any interest to the credit card companies. (I know they don’t like customers like me.)

If you can’t control impulse buying and carry balance on your credit card, credit cards may not be good for you. Most credit cards charge 19–26% annual interest rate — compare this to 0.05% annual interest you may get on your savings account. Credit card companies will let you get away by making only 2–3% payment of the statement balance, however, it may take you 15–20 years to pay off a $5,000 balance, and you may end up paying more than $5,000 in interest.

Final Thoughts

If you can avoid impulse buying and pay off your credit card balance in full before the due date, it is okay to use the credit cards, otherwise, consider getting rid of your credit cards (after paying off the balances.) You may use cash or debit cards for making purchases. In case you don’t know, debit cards may be used for making online purchases. For any emergencies, consider getting overdraft protection from your bank, and try to live within your means.

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Ravi Taxali

Software developer and self-taught investor, who writes about self-development, health, life lessons and finance.