How To Live Debt Free With No Credit

by admin on July 30th, 2009

Image from TangoPango

The classic Saturday morning cartoon “Garfield and Friends” came around 16 years too early. I remember distinctly as an 11-year-old watching my favorite cartoon on the couch early Saturday mornings, gaining wisdom in 6-minute vignettes that I still use today.

In an episode called “Cash and Carry”, Garfield’s owner, Jon, became fed up with his high credit card payments. He paid everything off, cut up the cards in true cartoon frustration, and declared triumphantly that he would only use cash from then on. It was going well for him until he went to the mall to purchase a wastebasket.

Going up to the counter with his basket, Jon hands the clerk a rectangular piece of green paper. The store clerk looks at him and asks, “What’s this?”

“It’s cash,” Jon said.
“Cash?”
“To pay for the wastebasket.”
“Um, I have to get my manager. I don’t know if we take ‘cash’.”

After encountering the same frustrating scenario in every store he visited, the 6-minute prophetic cartoon ends with Jon frantically signing up for every credit card for which he could find an application just so he could buy the stuff he needed.

Is our instant-gratification, consumer-driven society leading us to this end?

How We Live Debt Free With No Credit

My husband and I have been living credit-free for three years, opting for a cash-based budget. We have not accrued new debt since maxing out our six credit lines: we have not opened new credit cards, a department store card, not even a car loan. We budget our money and save up for larger purchases (or we at least time large purchases around bonuses and checks from the IRS). Instead of relying on a piece of plastic “for emergencies only”, we have some cash stashed away in high yield savings accounts for the unexpected events that we do expect will come up, especially with a two-year-old in the house.

When the “people in the know” (government and non-governmental economists, specifically) begin talking about “getting credit flowing again” so people can begin purchasing “things they need” to “get the economy going again”… indignation does not begin to describe our reaction. We do not use credit, but that doesn’t mean we have stopped purchasing altogether. Each month, we are able to purchase what we need, and even a few things that we want, thereby stimulating the local economy and providing local jobs without flirting with the risk of paying interest that putting a purchase on credit would bring.

Can We Live With A FICO Credit Score of Zero?

In approximately five years, my FICO score, as well as my husband’s, will be 0. According to the current laws of economics, we will become second-class citizens at best and completely cease to exist at worst. We will be asked to pay a fee to sign up for city utilities should we move. Should we change wireless providers or sign up for cable or satellite services, we will be asked to put down money upfront as a deposit — despite the fact that we would be able to pay for a year’s services in advance. We may not be able to rent certain apartments. A score of 0 may change my husband’s military security clearance.

We may be denied some things, but we will have our entire paycheck to play with. After the household expenses are paid, the money is ours to do with as we please. We won’t have to worry about fees or interest or missed payments or wondering where the money will come from if we lose a job.

So what has readily-available credit gotten us? A housing crisis. A very nice flat-screen TV purchased on impulse. Fear and hopelessness. The latest model hybrid. “Government Motors”. Wondering if the payment arrived on time in order to avoid a late fee. Less “play money” at the end of the month. Consumer credit counseling. More governmental regulation (not to mention guns in national parks). More bankruptcies than ever before in history. Taking four years to pay off a cheeseburger. Being known only as a three-digit number. Risking the possibility of an interest payment this month. The “Free Credit Report Dot Com” guy and other myriad credit monitoring services.

Are these good, or at least acceptable, things? Maybe to some people. Are they bad things? Ditto.

For us, “living within our means” means “if we have to make payments, we can’t afford it”. If everyone in the country was able to live within their means, would we have as many foreclosures, or repossessions, or harassing collection calls, bankruptcies, divorces, or other plagues on society?

When 75% of the Fortune 400 say that the key to wealth-building is getting and staying out of debt, do you wonder how it could be like to live without credit?

Contributing Writer: Rachel Strong

This is a post from The Smarter Wallet.

How To Live Debt Free With No Credit