Life Without Credit Cards

I think I've posted here that we don't use credit card debt (we use credit cards, but we never carry a balance).

We recently got a letter from one of the three credit card companies we work with and they are changing the terms and conditions of the agreement to such a degree that I closed the account and shredded the card. The terms included things like giving up my right to a jury trial in a dispute and a penalty interest rate for late payment of 39%.

I'm now left with only an American Express Card and a Discover Card, but I am beginning to ponder if it's even possible to function without a credit card given that I travel a lot, nobody takes checks anymore and debit cards are a major no-no for anyone who wants any level of consumer protection. As far as I can tell you can't rent a car or get a hotel room reservation without a credit card, and buying stuff online can be a hassle.

But maybe someone here has done it? Anybody? Anybody? Bueller?

I live without credit cards, and for some things like reservations and car rentals it is very hard. That is true.
A lot of places will not even accept cash, forget checks.
In addition to not wanting the problems of handling money they want that card number as a guarantee, just in case you damage their property.

This is where your problem most likely occoured with your CC company whose attempt to bump you of their books by changing your T&Cs to the point they were unacceptable appear to have succeeded. I bet your credit card company was glad to see the back of you.

I think it would be really tough to operate without a credit card.

In my experience, the issuing bank determines at least some of the card's policies. Some are *much* more predatory and mean-spirited than others, trying to get you deep in debt and milk you dry.

I try to use my travel backup card once a year, which I assume keeps it active on their books.

I never carry a balance under any circumstances. And my cards all give me Air Miles or a percentage of my purchase back. Might as well, nobody gives discounts for cash any more.

Same here, I pay mine off every month, and about 2 months ago, one of the 2 cards I had, closed my account and sent me a letter telling me to destroy my car.

I was heart broke...

I'm considering going to a "no credit card" life, and just using a debit card. In the past, I had fears about it, but researching it a little, they are safer than they used to be.

Here's a little about it from Dave Ramsey.

http://www.daveramsey.com/etc/cms/basics_of_debit_card_7085.htmlc

My thoughts were to maybe open a separate bank account with a Debit card, that is only for online transaction, and only has a nominal amount in it to cover online purchases.

Worst case, if someone stole the number, all they could get is what's in that one account.

I also carry American Express for a card, they are by far the best for fraud protection. I only have one Visa and one American Express Card and it has done everything I need to do, now on the flip side to continue your path with cash only, the things that you could do is use your banks debit/visa card or if you don't won't to explore that route, then I've seen many of the pay as you go credit cards in 7-11 that you add dollars to the card just as you would a pay as you go card. You would use it when you would absolutely need a credit card but I'm not sure if the rental agents for cars would accept that.

https://www.allaccesscard.com/prepaid-de...CFQITswodcT6gFg

https://www.netspend.com/

And of course a forum that talks about them being a rip off but for emergency may be a option

http://forums.moneysavingexpert.com/showthread.html?t=311257

Not all credit card lenders are going to screw you - look into CCs from your credit union or associated with your retirement plan, ex. Fidelity offers a variety of cards / plans. The CC lender is much less likely to screw you over if you have related financial business with their partner. We have two cards, one from our credit union and the other from Fidelity, and they both tolerate the fact that we pay in time, in full, and have never carried a balance.

The current business of the mainstream credit card industry *is* to engage with customers who carry debt and return a higher rate of return for the lender. They'll do whatever they can to cultivate that kind of customer, and if its not in their financial interest to carry a customer who only returns the transaction percentage (defn: deadbeats), they will do what they can to dis-incentivize your participation.

Years ago I had a card from a major well-known telecommunications company / lender that did pretty much this, including rapidly shifting the due date for payments, such that if I didn't read the bill closely I would be responsible for a late payment (a deceptive practice since outlawed, they must give 30 days notice of changes) and one that was especially fraudulent, declaring my payment as late even when my payment was sent on time (paper mail, but my check would clear at my bank 4 days ahead of their due date, they would simply claim I hadn't paid until it was late). Instead of cancelling the card I held it and just never used it. I would get a notice every 6 months that my card was about to cancel for lack of use, I would make one transaction, and wait 6 more months to make another, I kept that up for several years until I had established history with one of my current cards. Don't rush into cancelling cards if you can help it and you need your credit rating, cancelling can impact your credit rating for a while. Cancelling one card after holding another for at least a few years, not so much.

I'm trying to imagine a situation where a credit card company would NOT want even just the revenue from transactions, and I can't really imagine it. Unless you charge very, very little, carry no balance, always pay on time, and tie up a customer service person on the phone several times a month, it's hard for me to imagine that the CC company wouldn't want your business.

Actually, I've also heard the opposite situation--that customers with large balances are offered incentives to pay them off sooner rather than later. Apparently, the logic behind that is that all these large CC balances appear as liabilities on their balance sheets. One way to look stronger financially is to push down the liabilities on your books.

I've also wondered if these prepaid "credit cards" could be used to rent a car or book a room, too. Considering the increasing popularity of pay-as-you-go cell phone service, maybe we'll see more interest in these cards in the near future, too. Especially if the terms on their regular CC's get more and more punitive.

Just as a reference point. I work at a Digital Media agency in New York City and we do all the web work for one of the big issuers of credit cards (Hint: the name of the company does not start with an A, an M or a V) so I'm well versed in ins and outs of the business.

As far as Fraud protection goes - there is no company with fraud protection that is much better than anyone else's because it's all covered under federal law and is limited to $50 and most card issuers round that down to zero. All you have to do is keep a moderate level of control over your account, report fraudulent activity as soon as you suspect it and that's it. The "service" of alerting you to fraudulent activity on your card by the card issuers is in their self-interest - they really don't want to eat more expenses than they have to.

All you want to know about Prepaid Visa:
http://usa.visa.com/personal/cards/prepaid/reloadable_prepaid_card_faq.html#anchor_5

Where can I use my Visa Reloadable Prepaid card?
You can use your card online, over the phone and at the millions of places that accept Visa debit cards—including supermarkets, pharmacies, clothing stores, drug stores, and more. There are some guidelines for special transactions that you should be aware of before you shop - refer to the next two questions for more information.

Are there any special types of transactions I should know about before I shop?
There are special types of transactions that you should know about.

Gas Stations - Paying at the pump may cause a hold of up to $50; consider paying inside with the attendant for the exact amount and signing the receipt instead.

Restaurants - Restaurants may verify you have enough money on your card for the dining bill. Make sure you have enough funds to cover any added tip.

Hotels - Hotels may put a "hold" on the amount of your estimated bill, making that amount unavailable for other purchases. When you check out, that hold may take a few days to be removed.

Auto Rentals - You may use your card for final payment for a rental car bill, but a credit card may be necessary to reserve a rental car.

Returning purchases - Store return policies may vary. You may receive a credit to your card, a cash refund or even a store credit, depending on the particular store. A credit to your account may take up to one week to process before it's available for use.

Paying Bills – Pay just about any one-time or recurring bill.


Oh well. That's basically 80% of what I use the cards for. Forget it.

I keep forgetting about these hidden "holds" that various businesses can put on your card. That certainly puts a damper on using these cards for anything more than purchasing things.

I don't use credit cards personally. My wife did behind my back, and now I am paying off the balance slowly but surely. Those cards got destroyed.

I have bank cards with VISA, but no credit. I have a corporate credit card that only gets used for corporate business.

I see no purpose in ever using credit cards for anything other than business. It is the worst situation you could ask for permanently, it's like paying double the value for an item purchased with a credit card, unless you can diligently pay the balance owed before the interest is applied, which I don't know anyone that does.

I've paid off my cards - 100% - since 1999. I've never paid interest since 1999, and because my various cards give me various cash incentives to use their card, I get the opposite of interest - in any given month, I make $40 to $60 in "points" balances, which I routinely use for gift cards at Ace Hardware, Lowes and Home Depot. We usually use that money to buy "consumables" - detergent, tape, gloves, cleaning supplies, batteries, etc.

The trick with these cards is to make sure you don't use them to buy things you could not pay cash for in the first place. That's it. That's the big secret.

If they credit card terminal at the electronics store suddenly stopped working and they told you to pay in cash, you should be able to go to the bank, get the cash and pay (and not get the bonus points).

If you can't pay NOW you can't afford it. That's it. If you're charging and paying interest on gas food, you're poor, you need to go onto public assistance. If you're charging the cable bill, you're an idiot. If you're charging tools so you can make more than you'll earn otherwise, go for it, but make sure you pay that debt down before you buy a bag of chips, a can of soda or a slice of pizza.

You know, the more I type here the more I've convinced myself that I'm just pissed off at TD Bank and what I need is a new Visa card, that's all.

Nevermind.

Bingo! and that's exactly how I would treat them too. Unfortunately for most, including my wife, it is too strong a temptation, and they get nicked.

So with the CCCs changing their MO on you, I can see where dropping them and sticking only with those that are reasonable makes a lot of sense. Kudos Martin.

+1 Bingo. My wife and I must be atypical, because through thick and thin (and that includes a fair amount of thin) we have always bought and paid for our lifestyles in the same month.

In response to Arney wondering why a credit card issuer wouldn't want a customer who pays their bill, just compare: 1 million card holders who all buy and pay for things on time: you make the credit card transaction rate of return from the vendors, which is 3-5%. Or, 1 million customers who all carry a balance at an average of 13.5% (which would be low) but 95% tend to be good for the debts. You make 13.5% APR (minus credit defaults, which should be limited by the credit limits applied), plus the 3-5% transaction fee from the vendors. Only when you start looking at the combination of higher and higher credit limits and higher and higher default rates does the credit card industry begin to look at the value of good, old pay every month customers. Similar economics account for the mortage industy, which is similarly messed up right now.

Hi, nice to meet you, my name's Chris.

There, now you do!

Way back in the day there used to be something called a "secured" credit card. It was a great way for young adults to start a credit history. It worked like this...

Deposit X dollars in a savings account with the issueing bank/cu. Typical was $500. That became your credit limit.

In fact, I still have one of these cards hanging around after 20+ years that I use exclusively for phone/online purchases and nothing else.

Anyone know if they still issue these?

I just wanted to clarify--so this is an argument for why banks and CC companies want to drop those who pay every month? It's obvious why the carry-a-balance folks are a gold mine for the banks, but I still haven't heard a good reason to jettison the pay-in-full folks that they already have.

Actually, come to think of it, I think I'm asking the wrong question. Banks don't want to lose the pay-in-full customers. I suppose the banks are betting that most pay-in-full customers will just swallow the change in the terms and just keep charging and racking up those transaction fees, even if they never carry a balance. I bet that if this type of customer rejected the changes and cut up their cards in droves, the banks would back down very quickly. Cash flow is cash flow and when people charged $2 trillion in transactions in '07, you don't want to lose a reliable revenue stream like the pay-in-full crowd. It's like when Time Warner recently flirted with the idea of tiered pricing for Internet service, the public outcry made them scrap that idea very quickly.

Down here in Cayman, if you don't own a home or any other major source of collaterial, thats the only way to get a Credit Card.

I know Bank of America still has a secured CC program.

The problem with using your debit card as a credit card for travel is the hold put on the credit limit. If your CC has a $5000 limit and the hotel puts a $500 hold on it, then you just have $500 less you can charge. If you use your debit card, then you have $500 less in the bank until that hold clears. Several years ago, I had a $100 check bounce from my checking account that I thought had over 2K available, but there was over 2K worth of holds on my card from car rental companies and hotels, even though I paid cash for the bill (it took about a week to have my funds released).

When a hotel puts a hold on your credit card, we think it doesn't matter because it's not "our money".

When they put a temorary authorization on your checking account, all of a suddend it's a problem.

Fact is, either way you could end up being liable for the charge, that's why they put it on there.

Try not to trash the room.

Just a shot in the dark, but I wonder if they've been asked/forced to "reduce their risk exposure."

Who would they drop? Not the folks who are paying 15-20% and have no other choice. They will drop the "non-producing risk" which is no risk at all. So it looks good on the books even though it's B.S.

My $0.02.

+5 to that.

Local owner banks and credit unions are the way to go. they will still issue the card through a credit card company, VISA, etc, but the terms will be through your local financial institution. Generally local banks and credit unions are in much better shape than the big banks simply because they play games placing bets on money they didn't have.

Also, another big bonus in my book, over and above good rates and reasonable terms, is that money deposited in local banks and CUs tends to stay within the local economy.

Now you know one - in 25 years, I paid interest 1 month - In fact, I have the card set to auto pay the full amount every month. I treat it like cash

Your case is one of the reasons why CC companies need to be regulated and why a credit card user bill of rights is required. Right now CC companies can arbitrarily change the rules any time they want - on April 1st they did exactly that. My own rate for Mastercard went from 16.99% to 19.99% even though I have never had a late payment! Since I don't carry a balance either, the rate increase is not a big deal for me.

But the problem with closing accounts with CC companies is that it LOWERS your credit rating in most cases. If you can help - don't close those accounts just before going to your bank for a mortgage, line of credit or car loan. The drop in your rating will last for a minimum of 3-6 months.

Interesting thread. I've had credit cards since 1984, and NEVER missed paying them off every month. I used to have Discover, but they played too many games. I got a VISA years ago, for the sole purpose of having a card with a small limit for renting cars. I don't travel that much any more, so I'm not worried about it that much.

The one thing that I really like about credit cards is one check to pay at the end of the month rather than several. It really cuts down on postage.

I refuse to pay any bills on line. Not nearly enough safeguards. I once took out a car loan that way, and swore I'd never make that mistake again, and I haven't.

Working in retail and banking I've seen how dangerous paying by paper can be, I'll never go back and was an early adopter of online bill pay even paid for it way back when because the online bill pay fee was cheaper than dealing with the lost/delayed checks.

OK, let me give you some perspective on that point.
First of all, you're at more risk with paper-based ID theft than with "cyber theft". MUCH more. Again, the losers in the fraud game are more the merchants and less the consumers, so there's been a LOT of security stuff implemented that I can't go into but it's good. The nice thing is that there's this tireless and constant monitor of your accounts when you do stuff online, you just can't watch as closely with paper.

Secondly, in the last 3 years, the progress in online bill payment has been extensive. It's easier, faster and free.

Finally, A car loan is NOT online bill payment, that's a loan application, a totally different beast.

I just won another free lottery that I never entered.
I never knew winning lotteries was so easy!
Too bad they keep asking for personal information which I refuse to give.
I figure if they are smart enough to know my email address they are smart enough to know the rest of my info and just send me my millions, especially if they are from the FBI like the last few have claimed to be.

There is still plenty of online fraud.

I wouldn't touch anything that comes via email. Not with a ten foot pole.

But I do pay bills online, and that means they get paid on time. It saves me money in both interest and gas. I am fairly paranoid about keyloggers, so I run about five different deep scans before the monthly logon, and I keep changing the password. I also use a different machine, an old clunker, when exploring the more colourful fringes of the Web where cooties abound.

Okay, let me crawl inside the brain of a typical credit card CFO, who happens to have at least two Wharton MBAs more than I do. I may not convince you Arney, but I can at least try to give you an argument or two for why they they aren't enamored with the pay as they go customer.

Their rate of return on someone who pays as they go is 3-5%. On a $2000 average balance that's about $60-100 per month per customer. Billing and overhead eats into that revenue stream, lets make up a number and say its still $50-90 per month after expenses. If I as a customer make one phone call to my credit card company, maybe to ask a question, maybe to complain, god forbid I might want to avail myself of one of the 'free' services from my card vendor - I cost them at least $75, in direct employment costs and other overheard. I wish I could give a citation for this, I heard it on local radio - the average credit card customer is good for as many as two customer service calls per month. I might spend more than $2k per month, but can you see how the card company isn't wild about keeping me on as a customer, with the prospect of losing money on the first or second customer service call?

The whole point of retail lending is to reduce costs and maximize revenue - eventaully you don't want to have any personal contact with your customers, it costs you money - but that can't happen, not while there's still a big body of non-computer literate baby boom borrowers out there, calling 800 numbers instead of venting via email sent to intelligent responder systems.

Now a smart credit card company might want to keep me as a customer - I don't call them and cost them more money than they take in on my account. They can track that, and if they see my bottom line every month they know they can turn a profit on me. Having some customers with good credit practices might help them through the lean times, when more of their customers are defaulting on their credit card balances. But its unlikely that folks are clearing their credit card debt through bankruptcy, that was mostly eliminated under the previous Administration. But I'll stop there.

Its not that pay as you go types are bad customers - its just that there are so many better, more profitable customers out there, the pay as you go types suffer by comparison, in terms of deliverying revenue to the card company.

Its been a few years, but I once read an interesting book on how the credit system makes money on the vig, or float - the time between when they collect from the borrowers, and pay off the creditors, or vendors. This was in the 90s, before the Internet had basically reduced expectations and sped up payment systems. But ask your bank, anyone who can hold billions of dollars in funds for even a day can leverage that and collect a large amount of interest. Small businesses should know this too - I once worked for a man who insisted we pay our bills on the very last day possible, to keep his money in an account and earning interest as long as possible.

I don't disagree with the reasoning at all but it's the details that make all the difference. For example, this $50-90 is a real industry estimate or just some number pulled out of the air? This is the first "hard" number anyone has mentioned, and if reasonably accurate, then I'm surprised that the base cost is that high. However, I can see that a pay-in-full customer is marginally profitable at best if the relatively fixed monthly cost to keep the customer is so much.

It's been ages since I last carried a balance (I forgot to pay on time) so I can't really remember how it went. I'm half joking but also half annoyed when I say this, but with double-cycle billing that most CC companies seem to use, is it even possible to only pay finance charges for one month?

I seem to recall that it took a couple months for that finance charge to stop appearing.

The biggest security risk, when it comes to computers, is the peripheral located between the keyboard and chair.

I think the biggest problem some people have in their dealings with credit card issuers etc. is that they think of them in the same terms as they might a privately owned company or like the mom and pop store where they might buy their tools or hardware at.

You have to completely turn around what most people would consider good customer service and good business habits when you're talking about multi billion dollar credit card banks, to them a person who pays off their bill in full each month is a deadbeat. They might berate them when they call to collect from them but their most valuable customers are those who don't pay their bills on time, who regularly go over their credit limit and who charge things like cups of coffee cause they don't carry any cash.

If you own a small business you're gonna value the folks who pay at the time the service is rendered or on a timely basis cause that improves your own cash flow, if you're a credit card bank the last thing you want is someone not incurring fees and interest payments and you have to get the people who are actually your profit centers to think badly about not being able to pay you on time.

I read a book about the current credit situation a lot of people find themselves in, the author tells of interviewing a family member of a customer who died, the creditor harangued the surviving family members to no end, finally telling the Mother of the deceased that he would rest easier knowing that his debt had been paid off... The customer in this case had killed themselves because he was convinced that he was so far in debt that he would never get out and he thought that it was the best way out for his family.

Strange times indeed...

JohnE

While you're far LESS susceptible to malware on a Mac or Linux, you're not invincible, and as you know, traceroute is a series of pings that carry with it your IP address. Under normal conditions it's not that big a deal, however, there are cases where a ping can result in a disproportionate defensive response.

I also remind you that it is possible to crack into a Mac and gain "root" access - as the annual hack-a-mac contest has proven.

Even with all of that, I still would not do anything online pertaining to financial services from any computer running IE6, or for that matter any variation of IE (7 or 8). I prefer to run firefox and safari, but Chrome on a PC is darn good too.

But again, like so many things, the biggest risk is the user. Always was, always will be. "Screensavers" and all that - it's all bad, and people need to at least take a little responsibility to properly use a computer.

I was going to comment on the loan structure of credit cards earlier, got too long winded, and even political, so I edited it away.

Some people get confused and think credit card providers are a banking service meant to make life easier instead of the loansharking operations which they really are.

If you are paying your cards off on time you are tying up their money and not only not paying interest but depriving them of the interest they would have earned on that money if they invested it somewhere else like a business loan or treasury bond.
So if you are using interest free credit you are actually costing them money out of their pockets.

Of course they would prefer that you didn't do that.
From an accounting viewpoint they would prefer you not to use their card at all if you pay no interest, but because they are hoping to get you hooked into their loan-shark interest rate structure they use free credit card use as sucker bait.

That is the big difference between credit and debit cards. Debit cards only allow access to your own money and are not loans.

Phishing, the impersonation of your bank or financial institution by hackers seeking your personal information, isn't just web or e-mail thing. The hackers are shifting into blind calling phones, including sell phones, and IM.

The phone call typically uses an computer generated voice to tel you there is a problem with your account, that they are putting a 'hold' on your CC, or they are canceling the CC. The voice then suggests you need to address this issue and to get the inquiry started they will need you CC number, your account number ...

The IM sends a text message claiming a similar problem and telling you to call a number. If you call the number you get a computer voice that says it is the security office, credit department or some such and that to get the issue corrected they need you 16 digit CC number and ...

I have no idea what happens in the call after you give them your information. I never go that far.

When this sort of thing happens I call my credit union and explain the situation. I also call the CC company. If the call came in by IM I also call the cell service provider. Interestingly while the general impression I get from the financial side is: 'Yes it happens. We are aware of this. We will make a note of it and report it.'; the general impression is that they are annoyed I called, they really can't do much about it, and they are primarily humoring me because it isn't their problem.

The cell phone company was more attentive and asked if I remembered the identity of the IM caller and the number they wanted me to call. The IM caller was within their system and while they never claimed there would be prosecution I got the impression they would be looking into it and, at the very least, removing that client.

I figured I was reporting a crime. I could imagine someone with limited capacity handing over their information and losing everything. The calls to all the offices were toll-free and didn't take long. I figure that if nobody raises a stink nothing will get done. If it annoys the companies it is part of running a business and perhaps they might be motivated to do something.

The security systems around our financial sector, and the simple fact you can set up a CC account with just their name, SSN, DOB, and mother's maiden name are a disgrace. Using a person's SSN as a password is brain-dead stupid. But it is how the system is set up.

Not quite "loan sharking" (well, I didn't read anything about kneecapping for non payment in the T&C's I got) but, yes, it's a LOAN - an unsecured loan at that - so enter into the relationship with caution.

I am looking CLOSELY at www.revolutioncard.com - 100% PIN based, no card number on the card itself - really low merchant fees. Very neat.

If the Mafia could take you to court and foreclose on your property they would not need their own methods of collection either.
The only reason CCs don't kneecap their victims is they have the police and courts as enforcement and collection agencies.
It is very nice that we have legalized loansharking.

Usury, my friends, usury.

Actually, I hadn't thought of it before--if I get a credit card from my local one-branch-only credit union, which state's law apply to a credit card from them? My state's laws? Or the pathetic credit laws from Delaware or North Dakota that allows modern day usury? I would hope that it's my home state's laws if the credit union isn't headquartered in these other states.

Thanks martinfocazio. I will have to look into revolution card.