How to live without a credit card

Credit cards are ubiquitous, and we're even starting to see merchants that won't accept cash. For example, airlines such as Southwest only accept plastic for in-flight purchases. It can also be difficult to make travel plans without a credit card, as many hotels and rental car companies require you to place a credit card on file with them in case you run up room service or parking charges. If you don't qualify for credit or are just committed to living a debt-free life, you might be left wondering if it's even possible to get by without a credit card these days.

Travel
If you need to book a hotel room or reserve a rental car and you don't have a credit card, you may be able to use a debit card that has a major network logo such as Visa or Mastercard. Since there is no guarantee that you'll leave the hotel room or rental car in the same condition you found it, these companies may place a hold on several hundred dollars' worth of your checking account funds. Make sure you find out what the company's policy is before you give them your debit card number and make sure you have enough money in your account to cover any frozen funds. Some companies only accept credit cards, however, so you may need to shop around.

Borrowing for Major Purchases
If you don't have a credit card because you're not interested in borrowing money, this category doesn't apply to you. If you don't have a credit card because you can't qualify for one, however, you may also have trouble borrowing for a major purchase like a car or a house. If your inability to obtain a credit card is due to poor credit, you'll have to spend some time pushing the negative items on your credit report into the past and work at building a positive history before most lenders will want to do business with you.

If you don't have a credit card because your lack of a credit history has caused your applications to be rejected, your problem is easily remedied. Apply for a secured credit card with a small credit line. Make one small purchase per month and pay it off in full. Then, check your credit reports to make sure your payment activity is being reported to the credit bureaus. This activity will begin to establish your credit history. Once you qualify for the loan you want, you can close the account and go back to living without a credit card.

What About Account Security?
You no longer need to worry about liability for unauthorized purchases made with your debit card if it carries a Visa logo because of that company's zero liability policy. You should still read your debit card terms and conditions, however, to check for any limitations on this policy, such as a different policy for ATM withdrawals. Mastercard also has a zero liability policy for unauthorized debit card transactions made in store, by phone or online as long as your account is in good standing and you have not reported two or more unauthorized events in the previous 12 months. The policy does not apply to PIN-based transactions, though the financial institution that issued your card may protect you. Read your card's terms and conditions so you understand your liability exposure before you use your debit card as a credit card substitute.

Be Prepared
Living without a credit card means you'll need to do a bit more financial planning than folks who put everything on plastic. Every time you leave the house, you need to have an idea of how much you'll spend while you're out so you can make sure you have enough cash in your pocket, a sufficient balance on your prepaid card or enough money in your bank account to cover your debit card purchases without incurring overdraft fees. This extra planning takes a bit more time and can be inconvenient. You may not be able to make purchases when it is most convenient if you don't have any method to pay for them. The upside is that you'll be limited in how much you can spend when you leave the house, which will help you keep your spending under control.

The Bottom Line

While it may be inconvenient at times, it is possible to live without a credit card. You just need to do your homework to learn which purchases may be more difficult and determine how you can best handle those situations before you make a purchase.

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