Credit is a part of life for many of us these days. Credit card debt is one of the fastest-growing types of debt with a total of £68.23 billion owed on credit cards, as of March 2017. Sometimes, credit card use seems inevitable – but can you get by without one? It’s perfectly possible to run your life without a credit card.
Credit cards in the UK
In October 2016 there were 31.5 million credit cards in issue in the UK. Although this may seem like a pretty significant number in a population of 65+ million, by comparison, in October 2016 there were 100.1 million debit cards in circulation. So, in the UK there are almost three times more debit cards being used than there are credit cards. This indicates that, if you want to run your life without a credit card, you should have no problem doing so.
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Why live your life without a credit card?
There are plenty of reasons why avoiding a credit card is a positive thing, but do keep in mind that when you use a credit card to make a purchase you have additional protection under section 75 of the consumer credit act. You will also need to start saving for things before you buy them rather than the other way around.
No monthly payments to meet and no interest to pay
No fear of credit card fraud – in 2016 the UK had the highest rate of increase in credit card fraud in the whole of Europe
Have more control over your budgeting
Keep yourself free from the temptation of spontaneous purchasing if you don’t already have the money in the bank
Avoid the risk of incurring fees for going over your limit without realising
Keep your credit score intact – avoid the risks that come with missing, or defaulting on, credit card payments
Keep your finances simple – it’s easy to spiral out of control with credit card debt and if you don’t have a card, you don’t run that risk
How to run your life without a credit card
You might think that running your life without a credit card means simply turning to physical cash, but this is not the case. However, it does mean you can only spend what you have either in terms of physical notes or what is in your bank account if you have one.
Get a debit card
The likelihood is that you’ll need some sort of electronic payment mechanism and the debit card is a different animal to the credit card. If you’re just not comfortable with the concept of credit then the debit card should be easier to manage, as payments are made directly from your bank account. Unlike a credit card, if you don’t have the cash in your account to cover the payment then the payment doesn’t go through.
Useful tip: hotels used to require a credit card on check in to cover any spending during your stay but most will now accept a debit card instead.
Use a prepaid card
You can now pre-load a card up with cash if you want to have the convenience that a credit card offers without the risks. Prepaid cards are like an electronic purse – they aren’t linked to any account so they have the advantage of better security and you can only pay with what you have on the card at the time.
Useful tip: instead of keeping a credit card ‘for emergencies’ keep a prepaid card funded instead.
Set up direct debits
Regular payments made on a credit card can end up earning a lot of interest so you’re rarely getting a good deal if you meet your obligations that way. It’s very simple to switch the payments that you regularly make from a credit card to a direct debit instead.
Useful tip: having a credit card that you manage well can make a positive difference to your credit score. However, that’s not the only way to influence it. Direct debit payments – for example for utilities or your mobile phone – can also improve your scoring, as can paying your rent on time.
Sign up for PayPal
PayPal takes payments directly from your bank account and, unless you choose the credit/instalments option, it will work as a debit card does. Connect your PayPal account to your bank account and you’ll be able to make payments online with just as many stores as you would a credit card.
Useful tip: PayPal security is usually at least as reliable as a credit card and maybe even more so as retailers never see your actual card details.
Save some money
If the idea of living without a credit card makes you feel like you don’t have a safety net then put a serious savings plan into place instead. A large proportion of the UK population doesn’t have enough savings in the bank so you will be doing yourself a big favour by putting money aside. Savings are the best kind of safety net, as they cannot be stopped like a credit card can and you don’t have to pay anyone back if you use them up.
Useful tip: online banks consistently outperform bricks and mortar banks when it comes to interest rates on savings.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam