The Case for Cutting Out Credit Cards Completely

Some people have the vigilance and discipline -- and, sure, the savvy and an admirable passion for managing their money -- to own and even prosper from credit cards. Other folks, namely me, don't. But that doesn't mean we're dumb about money. We're smart enough to learn our lessons, to recognize our weaknesses and to understand their consequences for our financial goals. We fear debt, exult in ownership and find comfort in the controlled boundaries of our checking and savings accounts.

My wife and I own no credit cards -- no Visa, Mastercard or American Express cards, and no lines of credit with any retailers. Debit cards (plus cash and, on occasion, checks) are how we pay our way through life. We don't spend what we don't have.

As our own Knight Kiplinger reminded us in a classic October 2006 column, "all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday." Three years and one big recession later, our boss had to spell out 13 lessons from the sudden economic downturn in our December 2009 issue. Among them: Debt can be deadly, easy credit helps no one, and living beyond our means is over.

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As you'll see in Joan Goldwasser's companion piece, The Pluses and Minuses of Credit and Debit Cards, there are smart reasons for some people to own and regularly use credit. For instance, I acknowledge that credit may be a necessary evil for folks living paycheck to paycheck, or without a paycheck -- a way, perhaps, to pay for necessities, or a fallback to use in emergencies. On the other end of the spectrum, more-disciplined people such as Joan can use credit to spend most safely, pay off balances before interest accrues and accumulate valuable rewards along the way.

But let's set aside the principles of our argument for a moment and celebrate four practical benefits of using debit cards as your primary -- if not sole -- purchasing tool:

1. No annual fees and no interest. For certain, debit-card fees can be a sneaky drain on your accounts. Watch out for excessive or frequent fees for using other banks' ATMs, or for making too many debit-card purchases in a month. However, unlike credit cards, debit cards don’t come with an annual fee. And you don't borrow money when you use a debit card, so you won't incur any interest on your purchases.

2. One less. One less bill to pay each month. One less stamp to use (or one less online bill-pay account to establish). One less card to carry around in your wallet. Indeed, in Kiplinger's June 2009 cover story, Simplify Your Life, we advised that "consolidating your credit-card balances is another way to reduce hassles." I say consolidate to zero cards, and you'll not just reduce but eliminate those hassles.

3. Less risk of identity theft. With no credit cards, you have fewer accounts to monitor for potential violations -- and more peace of mind.

4. Versatility. Many debit cards double as credit cards and are processed as such if you use the card online or if you sign the card in person instead of using your PIN. And when you use the debit card as a credit card, many banks offer valuable rewards. My wife and I trade in our debit cards' accrued rewards points during the holidays each year for several hundred dollars in gift cards.

The downsides of debit cards are overblown or irrelevant to many of us. Debit cards' failure to boost our credit score? My crowd doesn't care much for borrowing and may never bother with a credit score beyond their first mortgage. Greater liability for theft on debit cards? Sign for your debit purchases rather than use the PIN, and you'll get the same protections you get by using a credit card. Besides, most banks are pretty accommodating in theft cases. Overdraft fees for frivolous use of your debit card? This is no bigger a concern than credit cards’ interest and over-limit fees.

Again, bravo to Joan and her peers who use credit safely and to their advantage. But also cheers for the rest of us, even if we may be turning our backs on credit's potential benefits, for being smart enough to recognize we're just as or more likely to fall victim to its trappings.