9 Reasons to Say No to Credit

How to talk yourself out of using credit when you can (or can’t) afford to pay cash

With credit cards and lines of credit abundantly available, using credit to pay for even the smallest of purchases has become a common practice. While paying with plastic is undoubtedly convenient, and can be a lifesaver in certain situations, there are both good and bad reasons to use credit.

If you sometimes find it hard to hold back, here are nine ways to talk yourself out of drawing on credit when you can (or can’t) afford to pay cash. 

Key Takeaways

  • Credit cards make it all too easy to overspend. 
  • Buying on credit can also make your purchases more expensive, considering the interest you may pay on them.
  • Getting into too much debt can not only hurt your credit score but also strain relationships with family and friends.
  • Bankruptcy can be a last resort if your debt becomes overwhelming, but it has serious, long-term consequences.

1. Credit Discourages Self-Control

At best, an unwillingness to exercise self-control when it comes to money can rob you of financial security. At worst, an impulsive attitude toward buying can have a negative impact on other areas of your life, including self-esteem, substance abuse, and interpersonal relationships.

Exercising restraint may be difficult and boring, but it also offers many rewards and advantages, such as the ability to achieve financial goals like buying a house.

2. It Likely Means You Don’t Have a Budget

Without a budget, it’s easy to forget how charging a cup of coffee here and a new book there can add up during the month and sometimes get you in trouble. For many people, a budget is a great tool for keeping spending under control.

If you don’t have one, it’s easier to create a budget than you may think. Budgeting can be as simple as making a list that shows how much money you earn in a month, followed by a running total of expenses. The remaining balance will tell you how much you can spend. 

3. Interest Is Expensive

The reason why self-control is so important when it comes to credit isn’t moral or spiritual; it’s practical. Credit card interest rates are high, making your purchases more expensive if you don’t pay your bill in full each month.

For example, if you buy something for $1,000 by using a credit card with an 18% interest rate, and make only the minimum payment each month, you will end up paying $175 in interest after one year and still owe $946 on your purchase.

If you don’t have the money to pay cash for something in the first place, then you probably don’t want to make it more expensive by adding interest to the price.

4. Rates Can Rise on Unpaid Balances

To add insult to injury, the terrific annual percentage rate (APR) that you thought you had on your credit card may have been an introductory rate, subject to increase after a certain number of months. An 8% APR can easily shoot to 29% in the blink of an eye. So, any unpaid balance that you build up on that card can suddenly get a lot more expensive.

“But that will never happen to me,” you might say. “I’ll pay my balance in full as soon as it’s payday.” You may have the best of intentions but can get easily derailed by unanticipated expenses, such as car repairs, and end up running a balance.

5. A Poor Credit Score Hurts More Than Just Your Credit

If credit card balances go unpaid, your credit score will start to drop and you may get an unexpected rate increase on your insurance bill. Insurance companies that check credit scores when calculating premiums may assume that if you can’t pay your bills, then you might let your car or home maintenance slide, or you might be an irresponsible person, making you a higher risk.

Poor credit scores can cause other problems as well. Some employers run credit checks on job applicants and may not hire you if your score is too low. And your credit score is particularly important when purchasing or refinancing a home because it will determine the interest rate on your mortgage—and whether you’re even eligible for a mortgage in the first place.

6. Bad Habits Risk Your Relationships

Studies indicate that couples and families fight about money more than any other subject, and it can be an especially sensitive topic when there’s not enough of it. As a result, couples and families should work on budgets and financial self-discipline together, whenever possible.

7. Using Credit Leads to More Spending

Many people spend more money by purchasing unneeded or overly expensive items when they pay with credit instead of cash. This is largely psychological, because buying a $1,000 laptop or smartphone won’t seem like a life change if you just sign a receipt and don’t even have to think about paying for a month.

On the other hand, you can physically feel the $100 bills leaving your hand if you pay with cash, giving you a better sense of how much those items cost and how much money you have left in your now-lighter wallet. To a lesser extent, this also can apply if you pay by check and immediately record the purchase in a checkbook that shows the impact on your account balance.

8. It Can Lead to Bankruptcy

If you go on spending sprees without a plan to pay them off, or if your plan goes awry because you lose your job or get hit with medical bills, then you may find yourself hopelessly in debt. Declaring bankruptcy can be an option in a dire situation, but it will also scar your credit history for up to 10 years.

9. It Can Erode Your Peace of Mind

If you don’t owe money, then you don’t have to worry about late fees, interest, annual fees, or over-limit fees. The best way to treat yourself to something nice is to save and buy it when you can truly afford it. The peace of mind that comes with not financing that purchase will be like treating yourself twice.

Why to Say No to Credit

Investopedia / Jessica Olah

How much credit is it safe to use?

That depends, of course, on your ability to repay. One way to look at it is in terms of your credit utilization ratio, which is the amount of debt you have outstanding at any given moment compared to the total amount of credit you have available to you. If you are routinely maxing out your credit cards, for example, you may be headed for trouble.

What is a good credit utilization ratio?

For the purposes of your credit score, the lower your credit utilization ratio, the better. Generally, you’ll be penalized if your ratio is higher than 30%. For example, if you have several credit cards with a total credit limit of $10,000, you should try to keep your debt under $3,000.

What is a good credit score?

Most credit scores run from 300 to 850. A score of 670 or higher is generally considered good.

The Bottom Line

Credit works well when balances are paid off each month, but it can be disastrous when poorly managed. The convenience, protection, and rewards offered by credit cards make them handy financial tools, but consider the risks before getting in over your head.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. MyCreditUnion.gov. “Understand Your Credit Card Statement.”

  2. Experian. “Understanding Credit Scores.”

  3. American Psychological Association. “Stress in America™: Paying with Our Health.”

  4. Experian. “How to Remove Bankruptcy from Credit Report.”

  5. Experian. “What Is a Credit Utilization Rate?

  6. Equifax. “What Is a Good Credit Score?

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