Do I Really Need A Credit Card?

September 18, 2019

When you work in the field of insolvency (bankruptcy), there is a question you get often: Will I be able to keep a credit card? People ask us this question because, in Canada, filing for bankruptcy means saying goodbye to your credit cards. This is a liberating experience but it also comes with some anxiety, especially for those who are dependent on their plastic for everyday expenses.

But this article is not intended only for people who are dealing with excessive debts or who are going to file for bankruptcy in the near future. I wanted to address the question of whether you really need a credit card or if it’s possible to live without one.

If I were writing this article 15 or 20 years ago, the answer would have been a definite “No, you don’t need a credit card.” And we probably would not even be discussing it. However, with the explosion of e-commerce and the wide range of online services like Spotify and Netflix, I am not sure I can confidently say that a credit card is optional.

How Many Cards in Your Wallet?

Before going any further, I think it’s important to say that unless you have a very good reason, you do not need more than one credit card. Credit card companies invest immense advertising and marketing budgets to convince you otherwise and to issue as many cards as possible. They will offer you interesting sign up bonuses to lure you in. Resist the temptation.

The only reasons I can see as to why you could have more than one are the following:

  • You have a business credit card
  • Your primary card is an AMEX and is not accepted Worldwide
  • You have a store card (e.g. Costco MasterCard) to get special rewards

If you see any other good reason to have more than one credit card, please leave a comment below, I am curious to hear your context.

What Is Your Credit Limit?

One thing is certain, your credit card issuer would love to increase your credit limit (as long as you are making minimum payments). You will receive countless offers in the mail to raise your credit card’s credit limit, but again, you should not accept these offers.

There are very few reasons to have more than $5,000 as a credit limit. That should be enough to pay for all your everyday purchases and even the occasional flight ticket or vacation package. If you have a family of 5 or more, maybe you’ll need $10,000 if you ever need to book a family vacation, but that’s about it.

What Are the Alternatives?

If you decide that you can live completely without a credit card, you must know that it is definitely possible. First, it’s a great idea to make your everyday purchases using your bank debit card. It will be much easier to abide to your budget if you can feel the actual money leaving your bank account.

Also, there are many options to pay using a credit card without actually having a credit card. The first option, and probably the simplest, is to get a prepaid/reloadable credit/debit card. These are useful if you don’t plan to use them very often as the transaction fees can add up. They are perfect for the occasional online purchase or for paying for flights and other large purchases. Be also careful about the monthly fees that can eat up your balance pretty fast.

Best Prepaid Credit/Debit Cards: Canada | United States

If you are looking for a different solution, you can also take a look at the VISA debit card and the Mastercard debit card. The cards allow you to pay using what looks like a standard credit card, but which is actually connected directly to your bank account. Funds are directly drawn from your checking account to pay for your purchase.

With these alternatives available, I would definitely recommend quitting on credit cards if you want to take your money management to the next level. No more getting into credit card debt! No more expensive interest paid on your purchases.

Article written by Jonathan Roy, Director at Pierre Roy & Associés, Licensed Insolvency Trustees

Photo credit: Bruce Mars.

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