Living a complete credit- and debt-free life might seem like a ridiculous suggestion. While giving up credit cards may just be an inconvenience to some, buying a house without a mortgage can seem impossible and even laughable to others.
But saving big on interest by never taking a loan is no laughing matter. While these suggestions are far from easy, they’re attainable for those that are willing to think differently and live less conventionally.
Throw out everything you think you know and listen up to how you can actually live without debt.
1. Debit and cash only
Debit and cash can cover just about any purchasing needs these days. How do I know? I’ve spent months without credit cards before and didn’t have any problems.
Debit cards carry advantages over credit and are accepted for just about every purchase that a credit card is. Despite what you’ve heard, debit cards can be used to rent cars and reserve hotel rooms with many companies. When it comes to fraud protection, you’ll have almost all the same protections as credit cards as long as your debit card carries a MasterCard or Visa logo.
Using cash only can help you avoid fees or interest that come with credit cards. According to one study, you may spend less with cash versus credit, too.
2. Save for goals
Instead of buying things on credit and paying them back, you’ll have to save first if you’re going to live without credit. Advantages include not having to pay interest on your debt as well as not risking long-term debt that you’ll never be able to pay back.
Aside from the savings, the experience of saving can lead to smarter purchasing decisions and even be more rewarding. Saving up for a big purchase requires some hard work and may just reverse your decision to buy if you don’t want it bad enough.
3. Get rewarded in other ways
If you’re tied to credit card rewards, don’t be. Look to debit cards and other ways of earning rewards instead.
PerkStreet Financial offers a rewards debit card with 1% back available on all purchases and up to 5% on special categories and merchants.
Ally Bank offers Ally Perks with rewards for debit card users for making purchases from selected businesses.
4. Skip the auto loan
Financing a car is a popular use for debt. But it’s often not a necessary one, and more often amounts to we just want to buy a car when we feel like it and have financing available. Instead, save up and pay for the car in cash.
Can’t save that much money? Choose an older car that you can afford, and you’ll save both on interest and from buying something fancier than you need.
5. Borrow, rent, and trade
Consider borrowing and renting stuff that you only use infrequently.
For borrowing, start by checking with friends, family, and neighbors to see if they can lend what you need. Beyond that, other sites make borrowing other people’s stuff easier, too. Check out SnapGoods and similar sites to see if someone nearby is willing to loan out a tool or other household goods that you might need for only one project.
If you still can’t borrow what you need, Home Depot and local rental companies offers anything from power tools to party rentals.
Renting cars for quick trips is easier than ever. With car-sharing from Zipcar and other companies available in dozens of major cities, you can check out a car for a few hours here and there when you need it.
You can always trade your stuff or sell it once you don’t need it, too, and the cash from the sale might be worth more than stuff collecting dust unused in your garage or basement.
6. Keep an emergency fund
Whether you’re living a life completely free of debt or not, having an emergency fund should be tops on your list for money priorities.
Using credit cards as your money source in emergencies is a recipe for disaster. So take credit completely out of the equation and save a fund you can use in emergencies.
7. Pay cash for a house or rent
Purchasing a home may warrant a loan more so than anything in American life. But just because most people take one out to buy a house doesn’t mean you need to. This family managed to save $100,000 to buy their first home with cash.
Options for buying a home with cash include buying in a less-desirable location or purchasing a fixer-upper. If you’re even more daring, you could consider a tiny house, too.
Or skip buying a home altogether and simply rent. Despite what you may think, renting isn’t always a bad deal. You’ll have more flexibility to move and won’t have to deal with the same costs and headaches that homeowners do.
8. Think differently
These are just some of the examples. Living without loans will almost certainly be tougher, so you’ll need to be creative about how you make it work even beyond the tips mentioned in this post. But being successful by avoiding all debt can lead to a more rewarding life, too, since you’ll never be tied to creditors and their terms.