BBC Capital

Pay It Forward

Take scissors to the plastic

About the author

Kate Ashford is a New York-based freelance journalist who writes about personal finance and health. She has written for Money, Real Simple and Redbook magazines.

(Hemera)

(Hemera)

Kelly Drake, 51, has not charged anything to a credit card for 10 years. “It really has not been as hard as I thought it might be,” said Drake, who lives in South Carolina. “I take out cash once a week as an allowance and use my debit card to buy gas, purchase things online and pay bills. I find that it is a better way to stay within your means.”

Drake is rare, however. Some 73% of American households own at least one credit card, and according to US site CreditCards.com. And 39% carry credit card debt over from month to month. This situation is not unique to the US Eeither, in Hong Kong, for example, 95% of consumers have more than one credit card, according to a Citibank study, and 84% of Malaysians have three or more cards.

Some other nations have a much more tenuous relationship with the plastic in their wallets, however.

About 60% of Indonesians use credit cards only once a week, and 81% of South Koreans pay off their card in-full each week, according to the same Citibank study. In France and Germany, consumers spend less than $300 a year on credit cards total.

“In general, every country in Europe has a local debit card that people use way more often than actual credit cards,” said Susan Salzbrenner, 31, who runs a training company near Paris in France. “Credit cards are not as common as in the US, and usually associated with a higher fee from the bank.”

But if you live in a country where credit cards are the currency of choice, there are a few things you should keep in mind.

What it will take: Living on cash and debit cards requires a larger cash cushion in the event of an emergency. It also involves slightly more hassle when it comes to certain purchases, such as renting a car or staying in a hotel. It also requires paying much closer attention to your finances, as you are not able to splurge and promise to pay later.

How long you need to prepare: You can switch to cash exclusively at any time, but before you cancel your cards, you will need to build up an emergency fund of one to three months of your living expenses. One good reason to keep a credit card on hand:, you can charge an unexpected expense. “One of the greatest benefits of credit cards is that they serve well in emergencies,” said Miranda Reiter, a financial planner in Tampa, Florida.

Do it now: Make a budget. The hardest thing about living without credit cards is the forced change in your spending habits. “When you pay for something with your credit card, you think, ‘Will I be able to pay this off later?’” said Adam Baker, founder of US site ManVsDebt.com. “When you pull out a debit card, the first thing you think is, ‘Do I have enough money now?’ That is not a small difference in psychology.” That means being hyper aware of your cash flow.

Think carefully before canceling your cards. In a country with a credit scoring system, such as the US, Canada, UK, and South Africa, severing all ties with credit card companies can have consequences. Banks, insurance companies, and employers may check your credit before offering you a loan, an insurance policy or even a job. If you must cancel your cards to prevent yourself from going back into debt, then do it. But if it is simply a symbolic act, consider locking them in a box in the basement and keeping your accounts open..

Be aware of the consequences of theft. If someone makes fraudulent charges to your credit card, you are not responsible for the money. The same is generally true for a debit card — but the false charges come directly out of your bank account. “Visa and MasterCard are very good about getting the money back quickly, but it does tie up your money for a few days,” Baker said. For the best fraud protection, use your debit card as a credit card — in other words,  do not use the pin function when you make purchases.

Do it later: Call ahead to book rental cars and hotels. Some rental car companies will not allow you to rent a car with a debit card. Others will, but place a hold of $200 to $500 on your card as damage insurance. “It costs us an extra phone call every time we rent a car,” said Baker, who, is credit card free. “Similarly, hotels often place a hold on a certain amount of cash to cover hotel incidentals. Ask ahead of time so you are not surprised.

Change your mind set. Consumer debt might be a sign that something is missing from your life — some void you are trying to fill through spending, said Julia Chung, a financial and estate planner with Facet Advisors in British Columbia,Canada. Consider a social life that revolves around something other than consuming — sports, book clubs, walking, art, music. “Create a philosophy where meaningfulness and status in life come from frugality,” Chung said. “Choose friends who value your company, not your ability to foot the bill.”

Do it smarter: If your work requires you to charge businessexpenses , it might make sense to keep a credit card on hand. “We have people in that situation,” Baker said. “They have to pay for a rental car and their company reimburses them, and they do not want to float that money.”

Replace credit card reward perks. Programmes such as Ebates.com in the US and Canada, or Quidco.com in the UK pay you money for shopping via their portals. Still feel as though you are missing out on valuable rewards?  Consumers using cash-back credit cards spent more and accrued more debt than consumers using non-reward credit cards, according to a study from the Federal Reserve Bank of Chicago.