I Will Not Use Credit Cards in 2012

After spending much of the last decade paying off the financial mistakes of early adulthood, I have decided to swear off credit cards for 2012, if not forever.

Debt is not a bad thing. Without the use of debt, college would be unaffordable for most Americans. Houses would still be just a dream except for the wealthiest Americans, or require years of frugal living in order to purchase a home later in life. But not all debt is good debt.

According to the Federal Reserve, total consumer debt in the U.S. is close to $2.5 trillion, with $792.3 billion of that being revolving debt. Nearly 98% of revolving debt is made up of credit card debt. Combine that with an average APR of over 15% (for new card offers) and you have a society that will be perpetually in debt. Instead of falling in line with the masses, I have decided to truly put some effort into paying off my remaining credit card debt.

A multiyear process
I began in earnest in 2010, using a deployment to Iraq and the reduced living expenses that came with it to start tackling my outstanding credit card debt. With limited options to use credit, I started to make a dent. Upon my return stateside, I had to reduce my monthly payments slightly after reincorporating many living expenses, and I still had some difficulty eliminating the use of credit cards from my life completely.

But that is all going to change in 2012. One of the first steps needed to truly combat dreaded credit card debt is not to add to it. Some suggest cutting cards up; others say to put them on ice in your freezer. Probably the best thing to do is determine what works best for you.

For me, it was simply taking them out of my wallet and "losing" my credit cards on purpose. If I don't know where they are, I won't be able to use them. This has served me well thus far, as the spender in me sees available credit every month that would look great as a new TV or other purchase I don't truly need.

Debit cards (and e-payments) to the rescue
Don't misunderstand me. I haven't reverted to the pre-credit card days and started paying cash everywhere. With the advent of technology, I can keep an eye on the bank account balance linked to my debit card and only spend the money I truly have available. Using a debit card eliminates the interest charged by banks and credit card companies in order to use their money.

With the majority of my personal purchases made online these days, many sites allow for direct debit of a checking account so you can even avoid using a debit card online. PayPal is a payment option found on numerous sites outside of parent company eBay (Nasdaq: EBAY  ) , the Amazon.com (Nasdaq: AMZN  ) Marketplace allows for non-credit card electronic payments for many products, and Google (Nasdaq: GOOG  ) Wallet allows consumers to centralize personal purchasing options.

Credit cards aren't totally bad
In spite of a pledge to not use credit cards this year, I don't know if I will eschew them permanently. When used correctly, credit cards can return rewards to users and add to purchasing power. But in order to get to the point where I can use credit cards positively, it is important to eliminate the debt that prevents me from using these rewards.

Join me in my quest!
Through effort and small sacrifices, I plan on having all my credit card debt paid off by the end of 2012. The first step in the process will be to not use them at all this year, and I encourage you to do the same. Not only will being debt-free allow you to put your money to work for you, but it will also provide peace of mind going forward.

Fool contributor Robert Eberhard holds no position in any company mentioned. The Motley Fool owns shares of Amazon.com and Google. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, and eBay. Motley Fool newsletter services have recommended writing puts in eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 11, 2012, at 4:48 PM, EnigmaDude wrote:

    There are times when it makes more sense to use a credit card than a debit card. Renting a car when travelling is one example. (Dollar used to charge a $250 deposit to my debit card when I rented from them, even if the total rental charge was less than $100!) To avoid identity theft is another reason. If you use a debit card to buy gas and someone sees you enter your PIN they can grab the card number and steal it. Another benefit of credit cards is for purchases that you need a refund for, or for an online purchase that was never delivered. Visa will refund your money no questions asked, most of the time. Try getting Bank of America to refund money to your checking account!

  • Report this Comment On January 11, 2012, at 5:01 PM, Hawmps wrote:

    <"... as the spender in me sees available credit every month that would look great as a new TV or other purchase I don't truly need.">

    This sums it up. There is a perspective that credit is a license to spend. Kahuna states that "credit cards are a financial tool" and I would agree partially. Credit can be a useful and valuable financial tool, hence the terms "good credit" and "bad credit" and it’s all about how you use it. In basic terms-- good credit example= purchasing investment real estate with a mortgage loan; bad credit example= buying a TV with "low monthly payments of only....."

    Credit cards have made consumer credit (the term deserves repeating, consumer credit) so widely available that it can be easily abused and the good use of credit as a tool can be misunderstood, that's where most people get in trouble. Good credit is used to purchase an asset that will generate enough income to pay for the credit plus additional cash to build up some reserves. You gotta pay yourself for taking on the risk of credit, right? So, make sure there’s enough cash-flow left over. If you are looking at credit for this type of use, the cash flow has to work and if it doesn’t, then keep shopping.

    I generally reserve credit card use for specific purchases that will be paid off at the end of the month. For example, it makes sense to use my Costco Amex to buy (cheaper) gas at the pump and get cash back on my statement and pay it off at the end of the month, as well as other regular, monthly household purchases at our favorite local warehouse. Vendors are already paying for you to use your credit card so why should you also pay to use it? Don't spend so much that you can't pay it off every month.

  • Report this Comment On January 11, 2012, at 5:06 PM, tramagli wrote:

    EnigmaDude, that's why I never use my debit card, credit card for everything. Sercurity and rewards are a powerful combo. Just make sure I can pay the charges in full each month

  • Report this Comment On January 11, 2012, at 5:12 PM, DonnaPawl wrote:

    If you use debit cards for purchases that you would otherwise have paid for with a credir card you forfeit the CC automatic 6 month warrantee on youe purchase thatis independent of any manufacturers' warrantee. Pay instead with a CC (preferrably one with a -0- monthly balance ) and simply pay it off before the end of the grace period for the card.

  • Report this Comment On January 11, 2012, at 5:16 PM, BMFPitt wrote:

    That sounds like a small "f" foolish thing to do. So long as merchants charge the same cash or credit (some gas stations are coming around on this) then it makes no sense to use cash. That 1% cash back adds up, as does the float (even if interest rates are pathetic.)

    "Don't use credit" isn't the right advice. "Don't carry a balance" is.

    Of course this is subject to each individual's ability to not be stupid. Stupid people (a significant part of the US population) may be best served with a single credit card in a lockbox buried in the back yard.

    Although it's also a nice thing to do to use cash in local businesses that you'd like to save a few pennies for.

  • Report this Comment On January 11, 2012, at 6:00 PM, Kirk42 wrote:

    My wife and I use credit cards quite a lot and keep cutting up the debit cards our bank keeps trying to send us. Like others here, we haven't paid a penny in interest to the credit card.

    Rather than using a debit card, try using online payments to move money from your checking to your credit card right after every purchase, or every evening. There's no rule that says you have to wait and pay the balance all at once (and if your card does require it, it's time for a new card). Also, most cards will allow you to pre-pay to your credit card, so you can plan ahead for a bit purchase if necessary.

    Anyway, 2% back and a free no-interest short term loan plus all the consumer protection laws that do not apply to debit cards make visa my go-to payment for most everything. (and don't even get me started about paying for gas with cash)

    Banks push debit cards for a reason, it's good for them, bad for consumers.

  • Report this Comment On January 11, 2012, at 6:10 PM, centsornoncents wrote:

    My parents taught me to only spend on your credit card what you can immediately pay back. I have had a credit card since 15 (now 25) and I have never missed a payment. Because I use the credit card for everything (candies at $1, fancy meals at $120, season snow tickets at $1300 etc which all add up) I have racked up enough points to buy me several tickets to and from Australia, USA, UK etc as well as countless other gadgets. A credit card is a tool and when used right is more beneficial then paying in cash (in most cases). As BMFPitt said, many credit cards offer cash back/1 point per dollar etc and (in Australia for example) my savings account earns 6.5% interest. That's basically free money as long as you pay off the credit card before deadline every month. This day and age, there is no such thing as free money!

  • Report this Comment On January 11, 2012, at 6:17 PM, pehenia wrote:

    I largely agree with Hawmps and BMFPitt. "Don't carry a balance" is the right advice in general, however this is how to not get into trouble in the first place. For someone like Mr. Eberhard who is already in trouble, more drastic measures are needed. I've been over my head in credit debt before as well, and a drastic mentality such is this is what is needed to get out of it. Once you're back on an even keel though, it comes back to no carrying a balance. And BMFPitt, ease up a little. Plenty, PLENTY of smart people have made bad financial decisions. I'm an engineer dealing with radiation on a daily basis and I got in trouble. Hell, look at Enron, or the banking collapse. It's about temperament, not intelligence.

    I use my CC to pay for just about everything other than what I give myself in cash each week to keep my spending in check - my "allowance" if you will. And I either pay all of it off or enough of it so that at the end of the year, I've earned much more in rewards than I have had charged in interest. I have an REI card, and was able to take a kayaking trip around Charleston, SC for $80 after using my rewards. So it can be a good thing.

    I agree completely with Hawmps. The only "good" debt is when you get more back from your investment than credit you took out. End of story. Buying a car is not "good" debt, neither is a house unless you own it for 40+ years because of how much you pay in interest. Education is always a good investment in yourself, though these days it's harder and harder to make sure it's a good financial investment as well.

    Thinking a mortgage is "good debt" is just an example of how far off many people in America are from reality. Credit kills - it kills your freedom, it kills your mind and body through stress, and sometimes it kills people literally. Many college students commit suicide each year because of the financial debt they've racked up. I remember watching a HGTV show where a couple from outside of Vail, CO was moving to Buenos Aires. They had to give up their sprawling $350,000 lodge in CO to buy a $80,000 condo in BA. Why the price difference? Because house purchases are cash-only in Argentina. They were deluding themselves to think they were rich enough to afford a $350k house. They didn't own it, the bank did, but so few people realize that. In countries where credit isn't so readily available, it really keeps people honest with what they can afford, and what they really NEED to purchase. The only people buying $35,000 cars are couples making over $300k/year, know what I mean?

    Anyways, sorry for the diatribe; credit and debt is just a subject I find really interesting.

    Andy

    www.mygreengear.com

  • Report this Comment On January 11, 2012, at 8:31 PM, CromulentBrad wrote:

    bouncing from one extreme (overusing to enormous debt) to the other (quitting cold turkey) is just not a healthy coping tool in finance or any other aspect of life.

    all things in moderation.

  • Report this Comment On January 11, 2012, at 9:03 PM, jmlerche wrote:

    I swore off credit cards when a few credit card companies changed their terms on me during the credit crisis although I never missed a payment. There is a class action suit against one of them now for doing just that. The borrower is a servant to the lender. In the past I thought that if i chose my 'master' wisely I'd be ok, now I just prefer to not have a 'master'. My choice of plastic is a paypal "credit" card which pays me 1.5% back on every purchase. Over the past few years I've received over $1500 back. Not bad for a small change in habits.

  • Report this Comment On January 11, 2012, at 9:43 PM, XMFTheGuruEbby wrote:

    Thanks for all the great comments everyone!

    I agree with the sentiment that credit cards are not bad if they are used correctly. I had a high school teacher once brag about buying a new car every three or four years because he used rewards cards to buy everything and paid the balance in full. I wish I had heeded his advice instead of the path that I chose. You live and learn.

    Robert Eberhard

  • Report this Comment On January 11, 2012, at 9:44 PM, bettor2win wrote:

    I remember watching Gomer Pile as a kid and he never paid with anything except cash. Good frugal way to live.

    Im with you pal...im guna trash those credit cards this year and not use em this year.

    I know some rich investors on here and around the world do not inderstand what it really means to be on a limit, but credit cards can and do destroy people. Screw credit clards this year! Thats what the 99% cant afford! CREDIT CARDS.

  • Report this Comment On January 11, 2012, at 10:03 PM, zymok wrote:

    I'm impressed with all the disciplined posters here who never carry a balance, never forget a payment date, and basically never screw up. Good for you!

    I'm solidly in the no credit card camp. No worries about the games banks play with due dates, double-cycle billing, adding in annual fees, or anything else. No chance of having a lapse of discipline and buying something I can't pay for immediately. Never run a balance because things got hectic in the month or I had unexpected expenses and making a partial payment was just too darn convenient.

    It's a personal choice, but for me using a debit card only is far easier and lower risk than a credit card. In fact, I would say that nixing the credit cards was the second best financial decision I ever made. (The first was going on a written budget.)

    Good luck to you in going off the cards. They do have one final use thought - some of them can be cut into pieces and assembled into a pretty mobile. :)

  • Report this Comment On January 12, 2012, at 8:18 AM, GordonsGecko wrote:

    If you lack the discipline to pay off the balance every month or the abilitiy to live below your means, then you should not use credit cards unless it is an emergency. It's really that simple.

    However, I cannot resist the lure of free money. I pay my bill off every month and put as much as I can on my Fidelity Amex and Fidelity Visa. 2% (amex) or 1.5% (Visa) on everything I buy in the form of credit to my investment accounts is nothing to sneeze at.

    As long as I'm not carrying a balance and paying interest, I am coming out ahead. I just wish I could pay all of my bills with my credit card.

  • Report this Comment On January 12, 2012, at 9:13 AM, 91x9x19 wrote:

    For me,

    I prefer to have peace of mind.

    For those that claim that a 1-2% return on their expenses through a credit card is worth it...

    if one to two percent of your expenses makes any financial impact on you,

    I'd respectfully submit that you are spending too much.

    Living debt free is just about the most wonderful, liberating, empowering thing that can happen in your life.

    Good luck to you all.

  • Report this Comment On January 12, 2012, at 9:20 AM, A2Matty wrote:

    We pay everything with credit! I travel for work almost 5 days per week, wife travels a bit for work too. Between our points and cash back, we'll have 2 pricey vacations this year that will cost us zilch!

    Yes, try traveling regularly without credit. You rental car company (even for someone who rents every week) will require a deposit and copies of your itinerary. Hotels take a deposit as well. And, you have very little help or security if a card is stolen or you're overcharged for something.

    We pay our cards off every month. This wasn't always the case as I was likely more like the author in early adulthood (partying and chasing women). Now I go to play dates and chase kids...and count the extra thousands of dollars I get in cash back.

    I heard Dave Ramsey once say that no one ever got rich off of points or cash back. Dave, I said THOUSANDS, not tens or hudreds of dollars! That may not be what's making me rich, but it is aiding and abetting a healthy money lifestyle!

    During 2011, we earned $2743 in cash back. Most of that was on a 1% card that offered quarterly 5% earning categories (chase freedom). We switched to a 3% cash back Amex from Costco in October.

    Companies have the cost of credit transactions figured into their prices, why not take advantage of it. If you pay cash, you lose.

    Pay your balance each month, enjoy the security, take advantage of the float, and LOVE the cash!

  • Report this Comment On January 12, 2012, at 10:05 AM, FutureMonkey wrote:

    You know you can preload your monthly expenses onto your card. If you can follow the envelope method of budgeting you can track you cc expenses by category and know exactly where your spending is without ever going over zero balance. With my savings account paying 0.diddlysquat% I'd rather take the 1.5% cash back on my monthly living expenses, exercise my credit, and stay a month ahead on expenses. When the inevitable surprise expense hits and I go over budget, I still don't carry a balance. I do the same with my utilities, cellphone, cable, always a month or two ahead. Knowing that I don't have to worry about balances, missed due dates, or dipping into savings to meet my month budget is peace of mind. Pay it forward.

    FM (long MA and V) so everybody please use your credit cards a lot.

  • Report this Comment On January 12, 2012, at 10:05 AM, PuddinHead42 wrote:

    You mean, you will not carry a balance, but just use it as a convenience card that is paid off each month because you are capable of controlling your urges and spending ;-)

  • Report this Comment On January 12, 2012, at 10:27 AM, TheDumbMoney wrote:

    Foreswearing credit cards is like removing all alcohol from your home and life: you should ONLY do it if you truly have a problem. But if you do have a problem (spending beyond means in the one case, addiction in the other), you MUST do it. Otherwise, pay your credit cards off every month, and have a couple of glasses of wine on Friday night.

  • Report this Comment On January 12, 2012, at 11:28 AM, BMFPitt wrote:

    @91x9x19

    "For those that claim that a 1-2% return on their expenses through a credit card is worth it...

    if one to two percent of your expenses makes any financial impact on you,

    I'd respectfully submit that you are spending too much."

    So you'd turn down free money if it wasn't enough to change your life? You think that the thrill of using plastic caused me to buy way more gas or diapers than I otherwise would have? To each his own, I guess.

    "Living debt free is just about the most wonderful, liberating, empowering thing that can happen in your life."

    As far as I'm concerned, if you don't ever pay interest, it's not actually debt. The way I see it, I just hold some bank's money for them for 20-50 days, and get paid to do it. The bank who is currently paying me for this this service, gave me $300 just for switching to them.

  • Report this Comment On January 12, 2012, at 12:19 PM, XMFTheGuruEbby wrote:

    Fools,

    The general consensus seems to be that credit cards are great if you pay your balance every month, especially if you get rewards. While I agree, once you get to a certain point, which is where I am at, you no longer are able to get these great credit cards with all the benefits mentioned. After this year, when I get everything under control, I do plan on using credit cards as BMFPitt suggested, and borrowing somebody else's money and not paying interest. Until then, my hands will be tied.

    Thanks again for all the comments.

    Robert

  • Report this Comment On January 12, 2012, at 12:50 PM, Kirk42 wrote:

    It also helps to get your card from a reasonable bank. My Visa is from a well known credit union, not one of the major "screw you for every penny" banks. This makes a huge difference. I don't have to deal with funny payment games, sneaky fees of any sort or anything like that.

    Read that fine print.

    I also have my checking and savings at the credit union, so transfers for payments are very easy.

    I also use my credit card for automatic payments for everything I can, like phone bills and the like. I get the 2%, and I get extra protections from billing errors.

  • Report this Comment On January 12, 2012, at 12:56 PM, XMFHRFool wrote:

    TMF's Foolanthropy division will be launching a free website dedicated to helping people eliminate their credit card debt. We expect to be ready for launch sometime within the next 2-3 months, so stay tuned if you need help tackling this problem!

    What is Foolanthropy? Read about it here: www.foolanthropy.com

  • Report this Comment On January 14, 2012, at 7:33 AM, drbowser wrote:

    I have never and will never have or use a debit card. What a waste when a credit card provides protection and rewards! My rewards each year are like FREE money! The key is to make sure you pay them off each month which I have done each month for the past 15 years. I dare say that in that time I have earned well over 20,000.00 in rewards - a significant portion in cash or reward cards for Starbucks (same as case) or FREE items at LL Bean (same as cash as I would have purchased them any way). In addition, the protection has saved me from fraudulent charges as well as bad businesses (probably worth at least another 10K).

  • Report this Comment On January 15, 2012, at 11:24 AM, sachamay wrote:

    eBay may not grow much compared to Amazon in terms of online sales, but it's got something else that could make the stock rocket in the coming years. Check out this article to see why eBay is going to see a lot of success:

    http://www.criticalpoint.co/archives/186

  • Report this Comment On January 18, 2012, at 9:31 AM, jrdow wrote:

    Lots of commenters seem to think they're "winning" by getting 2% cash back on purchases made by credit card and paying the balance off each month.

    You're only "winning", though, if the amount you're spending using the CC is less than ~102% of what you'd spend if you made every purchase with cash.

    A guy named Feinberg did a study back in the 80's and found that people were willing to spend more money for an item (more recent studies have said up to 100% more in certain cases) when they used a credit card than those who were instructed to use cash.

    So who's winning, really? The guy who spends $500 one month eating out and gets back a whopping $10 in "rewards"? Or the guy who spends $300 eating out and saves or invests the rest?

    My guess is that (for most of you anyways) cutting up the credit cards will cause you to save more than enough on frivolities to make up for the 1-2% cash back (probably enough to purchase an extra 6 month warranty on the few items that would need it).

  • Report this Comment On January 18, 2012, at 11:52 AM, Pierri wrote:

    I see many stating that credit cards protect against identity theft better than debit cards. That is simply not true. All debit cards can be run as a credit card. No PIN number is required and when run as a credit card, VISA/Mastercard/etc. offer you the exact same protections as a credit card. Selecting credit when using a debit card just means that you are using the credit processing system and thus all the same protections are granted. That's how I run my debit card at gas stations, etc.

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