What It’s Like to Live Off Credit Cards

It’s *Extremely* Rewarding


Therin Alrik

3 years ago | 7 min read

Whenever someone learns that my wife and I charge almost all of our expenses to credit cards, they often assume the worst: that we’re living outside of our means, drowning in debt, and paying exorbitant amounts of money in interest — none of which are true.

Actually, it makes much more financial sense to ditch your debit card in favor of credit, which is probably why Americans with higher incomes tend to prefer it as their primary method of payment.

Although I’ve only used credit cards for the last three-and-a-half years, they’ve become an integral part of my financial well-being. From better protecting me against fraud to providing much-needed flexibility when living on tight budgets, switching from debit to credit has been one of the best financial decisions I’ve ever made.

1. It’s Safer

If you use a credit card, you don’t have much to worry about when it comes to having your card skimmed or your data stolen. If you’re able to report your card missing or stolen before it’s used, you won’t be liable for any charges made to the card.

If you aren’t able to report the theft until after it’s been used, the maximum you can be held liable for by federal law is $50. Conversely, if someone steals your debit card number and drains your bank account, it can take months to get that money back — meanwhile, you’re out of funds.

Unfortunately, card-skimming (especially at gas pumps) is all too common. In 2015, losses from global credit and debit card fraud exceeded $21 billion, but the consequences for consumers varies depending on which method of payment was used. Although federal law also protects bank accounts, provided you didn’t knowingly expose your own data, your financial institution has up to 60 days to reimburse your stolen funds.

If you don’t have access to credit, you won’t have any money to live on while you wait, which is exactly why fraud expert and former con-artist Frank Abagnale (whose life story was made into the Spielberg/DiCaprio film Catch Me If You Can) called the debit card the “worst financial tool ever given to the American consumer.”

2. It Provides Financial Flexibility

Every time you swipe your debit card, the money you spend must be in your checking account at the time — otherwise, you overdraw and pay a fee. Although most personal finance experts would prefer that you only spend what you have on hand, middle and working-class folks know well that real life doesn’t often work that way.

A couple days before Christmas last year, I took our car into the shop for a routine brake pad replacement. Including an oil change, the entire thing was only supposed to cost about $150.

But naturally, something had to go wrong. It turned out the front axle also needed replaced, but to replace the axle they needed to remove the boot, which became impossible due to years of rust. Nearly six hours later, my car was no longer drivable, the new parts I needed would take more than a week to arrive, and my bill had risen to over $1,000.

Without a credit card, I would have had to choose between fixing the car and paying rent the following week. There simply wasn’t enough money in my checking account to cover both.

And I’m not alone here. When faced with a $400 emergency expense, 47% of Americans said they would need to borrow the money, sell something, or wouldn’t be able to come up with it. But because I’d built up a sizable credit limit on several of my cards (and always pay them off each month), I was able to charge the car repair to a card with a due date nearly two months out, buying me plenty of time to find the money to pay it off.

3. It’s *Extremely* Rewarding

By effectively managing our credit card usage, my wife and I have been able to go from a beginner’s card with a 1% cash back rate on all purchases to owning six different cards with cash back rates between 3%-5% in almost every category. As a result, we made over $1,000 in cash back last year.

But the best reward of using credit cards is the credit history you build that results in lower interest rates on big life purchases, like mortgages and auto loans.

Of course, not everyone will want to do the kind of research necessary to assemble a credit card portfolio that maximizes your cash back to that extent. But every card offers cash back of some kind, which means you earn money on purchases you would have made anyway — and after a while, those rewards really add up.

Plus, all of my credit cards offer additional perks, like extended warranties on certain products, retail protection, travel insurance, rental car coverage, and exclusive access to concerts and sporting events. In addition to the fact that credit cards are typically required for car rentals and hotel stays (and I get 3% cash back on each), I save even more money by not having to pay for additional insurance coverage and staying protected against any other kind of travel accident.

But the best reward of using credit cards is the credit history you build that results in lower interest rates on big life purchases, like mortgages and auto loans.

While you may think you’re wisely avoiding credit cards so as to not succumb to paying interest, by lacking a robust credit history, you’ll make it much more difficult to get approved for loans on anything else — cars, homes, even furniture! And when you do get approved, you’ll pay a much higher rate. So by building credit now, you’ll actually save on interest later.

Lastly, though this is by no means a universal practice, many employers and landlords run credit checks. When that turns up empty, your options for housing and employment may be limited.

4. It Teaches You Essential Life Skills

Among most of our friends, my wife and I are the only ones who use credit cards. When I talk to my students about life skills each semester, we almost always discuss credit cards — and most are terrified of them.

Young people’s fear is certainly justified, having watched our parent’s generation struggle immensely with credit card debt. Clearly, all of the benefits I’ve described become defunct if you end up accumulating interest charges by carrying a balance each month, and understandably, life’s emergencies might very well contribute to a potentially unmanageable balance.

But if you’re just starting out (or starting over), your initial credit card use can be a great way to practice self-control, long-term planning, and other aspects of healthy financial management.

If you’re really worried about your spending, you can always trick yourself into using your credit card like a debit card, only purchasing what you know you have in cash that month.

By practicing this kind of self-control, you can ensure that your credit card spending doesn’t exceed your income. And when it does, the double-digit interest rates should inspire you to execute a long-term plan to pay off the debt before the next due date (or quickly thereafter) — all of which are essential life skills that apply to much more than just your finances.

5. It Allows You to Invest in Yourself

Last year, my wife started a photography business. Like any business, it required several start-up expenses, and for us, one of the most expensive was an iMac (all we had at the time were PC laptops we’d owned since graduating high school). But if we’d been forced to buy the iMac using only the money we had in our checking account, I’m sure it would have taken quite a long time before we were able to afford it.

Instead, we applied for a new credit card — the Wells Fargo Propel card — which offered a $300 sign-up bonus for spending $3,000 in the first three months. After buying a refurbished iMac for $2,200 in the first week, the rest of our usual monthly expenses easily put us over that threshold.

The Propel card also allowed interest-free purchases for the first 12 months. So after deducting the sign-up bonus, that $2,200 iMac went down to $1,900, which translated to a monthly payment of a little under $160 in order to pay it off on time and avoid interest — which we did.

Without credit, we likely would have spent years saving up to start that business. Instead, we were able to launch almost immediately, and now those years can be spent growing our income, which will have compounding effects that put us in a much better lifelong financial position.

Ultimately, family and personal history, as well as cultural perceptions of credit card use, might present a significant barrier to making the switch. And it’s by no means an unreasonable hesitation. But there are plenty of safeguards you can put in place to ensure you handle your newfound credit responsibly, such as using a secured card with a low credit limit.

As long as you can avoid credit companies’ interest-rate traps, you’ll be able to take advantage of all the security, flexibility, and rewards these cards can offer without letting interest charges break the bank.

In fact, just by changing which card you use, you’ll likely find your bank account with a much higher balance later on!


Created by

Therin Alrik







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