Kick Your Credit Card to the Curb

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Life without a credit card is possible. And in many cases preferable (see two exceptions below).

It’s going to take discipline and an ability to delay gratification. But if two young adults like Jenna Ricker and Victor Moses can do it, there should be hope for the rest of us.

Here are four ways to embrace cash, and kick your credit card to the curb:

1. GET ONLINE ALERTS.
Get email or text alerts from your bank with your daily balance, says Stephanie Smith, head of online banking for Wells Fargo (Stock Quote: WFC). “This helps you pay attention to what you’re bringing and what you’re paying out,” says Smith. Or, hop on to your bank web site each morning and night to learn where you stand financially, just like you step on a scale.  “I check my balance every few days and make plans when I have to make large purchases,” says Ricker. “It definitely keeps me in touch with my moola!” In addition to surfing your bank’s web site, check out sites like Geezeo.com, where you can set up a free account to manage all your finances, including student loans, your mortgage and credit cards. (Full disclosure: Geezeo is one of MainStreet's sister sites.) The site has budgeting applications and several “expert” forums where you can ask financial authors (like me) any money questions. Also, the Apple iPhone’s (AAPL) “JustAddMoney”  expense tracker records your spending as you enter in your receipts, checks, purchases and cash summary. The iPhone also has “Spend Lite” which lets you make daily and weekly financial plans.

2. LINK YOUR SAVINGS AND CHECKING ACCOUNTS.

Bounced check or insufficient fund fees can be as high as $35 at some banks, even with the so-called “overdraft protection.”  If you slip up this can be a serious dent in your account. Sign up to have your checking and savings accounts “linked” at your bank. In case there’s a deficit in checking, savings will help cover the transaction. This is usually a free service, though some banks do charge a $5 “transfer fee” for linked-account programs, according to the FDIC.

3. GET A WALLET WITH A FEW POCKETS.
There are many fashionable wallets with three or four different bill placers, sort of like an accordion wallet (if you will).  This way, if you’re totally at a loss as to how to divvy up your cash – and you don’t want to use envelopes or jars at home – these types of wallets can help separate your cash for different expenditures throughout the week. Use one pocket for food, the other for gas, another for drugstore purchases, etc.

4. BUILD UP A CASH RESERVE.
Since so many of us use credit cards for emergency purposes, switching over to cash-driven life requires a strong build-up of cash for your added protection. Not to mention, you will need the savings to afford big-ticket items like furniture, your child’s day care, an unexpected car repair, etc.

Saving even a little bit each week can be simple (like ditching your landline phone) and even fun (like learning how to cook a new dish).

TWO TIMES WHEN PLASTIC IS OK
At the same time people cannot live on "bread" alone, so while you get re-acquainted with raising and spending dough (cash), there are times when a credit card will help save you money.

1. TO KEEP ACCOUNTS JUST “ACTIVE” ENOUGH

It’s not enough to just keep credit card accounts open and unused. You have to keep them active to maintain a reputable credit standing, which does matter in the grand scheme of life. Here’s why: Keeping credit card accounts open, but not using them, risks having the card issuer close the account. That’s not an ideal situation since a closed account lowers your available credit, a significant factor that determines your credit score, a number between 300 and 850 that determines how high or how low of an interest rate you will get on a mortgage, a car loan or an insurance policy.  A closed account also shortens the length of your credit history, still another variable in figuring out your score. If you don’t have any credit cards in your name, it may be to your advantage to open a credit card account and use it responsibly, but still sparingly so that you don’t risk going overboard.  Gail Cunningham of the National Foundation of Credit Counselors suggests keeping your existing credit card accounts “active” by charging a small amount to them each month for say, only fixed expenses, like cable or car insurance, and linking those cards to a checking account which pays off the balances automatically in full each month.

2. TO KEEP YOU LIQUID WHILE TRAVELING
Admittedly it’s hard to book reservations at hotels and car rental agencies with a debit card because sometimes these companies pre-charge your card in the estimated amount of your final bill. This may put a “freeze” on your account until the payment actually gets resolved, which may take up to three days.  In the meantime, you lose access to that money and in some cases the charge is more than what you expected to pay and maybe more than what is in your account at that time.  Consider using a credit card at that point, but resolving the bill with a debit card or a check.

Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Fridays at 7 p.m.

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