More and more people are embracing a life without credit cards and eschewing the buy now-pay later mentality that accompanies the cards. Since using credit cards is mainly a matter of convenience to most people, it is not that difficult to put away the credit cards and learn how to restrict your spending to your current financial ability. There are some steps that you can take to make living without your credit cards easier and some tips that can help you avoid the financial pitfalls of a life free of credit card use. Here are some things that you should know prior to embracing this financial management technique.
Keep An Emergency Fund
One of the most important things that you must do when embracing a life free of credit card use is having an emergency fund established that you can use in the event of a financial emergency occurring. This money can be used when you need to make expensive repairs to your home, pay medical bills for an illness or injury, replace a malfunctioning appliance, or fix your car. Many people tend to use their credit card as their emergency fund, racking up large bills that they cannot afford to pay off and paying interest on the charges for months or years. Having an emergency fund established allows you to handle these issues without using credit.
Do Not Cancel The Accounts
You can stop using your credit cards without having to cancel the accounts associated with them. The length of time that you have held your credit cards and the credit limits that are associated with them are a big factor in the calculation of your credit score. If you cancel your credit card accounts, they are dropped from the calculation, which could cause a steep drop in your credit score. Since your credit score is used for everything from approval for housing to getting approved for a job, it is important to keep your credit score as high as you can for as long as you can. Leave the accounts open, but take the credit cards out of your wallet and store them someplace in your home that is secure.
Check Your Credit Reports Regularly
If you are not using your credit cards, it is important to check your credit reports regularly to ensure that nothing is going on with your credit that you do not know about. Checking your credit reports regularly allows you to check on your credit rating and see if anyone has been using your credit information fraudulently. Any mistakes or indications that fraud has occurred should be reported to the credit bureaus quickly to ensure that the information is fixed and erased from your credit history. A big drop in your credit score will make it difficult for you to be approved for jobs, rentals, or lending in the future.