Living Without Credit

Craig (aka BudgetPulse) has the opinion of majority of Americans,

Living on cash only is not realistic and you need to build a good FICO score for loans and big item purchases.

However, is that accurate? Many Americans have found that they can live without debt as reported by a recent NBC story. The reasons vary, but thousands, maybe millions have found it can be done. Lets take a look.

Lisa Brough was forced into a debt-free life by medical disaster.

Her husband has Huntington’s disease, a degenerative brain disorder, and has been unable to work since 1999. The couple, who have three children, saw their finances suffer as a result. They ended up with $50,000 worth of credit card debt as Brough worked two jobs and still struggled to pay the bills and the high property taxes on their home in Westchester County, N.Y.

“I said to myself, ‘I can’t do this anymore,’ ” she recalled. “He was going downhill, and I had to figure out a way to get out of this. I couldn’t count on tomorrow because I didn’t know what tomorrow would bring.”

In 2005, she took drastic measures. She decided to sell her $350,000 home, pay off all the family’s debt, and move to lower-cost Cary, N.C., where she was able to buy a house for $164,000 house in cash.

Since then it’s been cash and debit cards only for Brough, 50, who has no debt of any kind.

How does she do it? She buys secondhand furniture and electronics, gets her husband’s medicines from Canada at cut rates, has a $10,000 emergency fund and thinks long and hard before she opens up her wallet.
- MSNBC Business Desk

That comment, she couldn't count on tomorrow is the same argument that Dave Ramsey uses (or one of them) to urge his listeners to go cash only. She took the step to sell a more expensive house to pay cash for a house that was more in price range. Basically, she stopped trying to impress those around her and instead, just bought what she needed.

JD Roth, who writes the “Get Rich Slowly” blog, says more of his readers want to move in the debt-free direction. “It’s this whole movement back to basics,” he says.
- MSNBC Business Desk
Roth continues by telling NBC that the idea may not be so simple (or realistic) for everyone, because they have the mentality of I want it and I want it now. How true that is. However, it is my firm opinion that it is very realistic, but we do need to get rid of the attitude that we deserve everything that we see. We can't have eyes bigger then our stomach, or in this case wallet.

Indeed, going debt-free is no cakewalk.

“We have to always plan ahead now and make sure we have the cash,” says Jeff Pelletier, who stopped using credit cards after a series of unfortunate financial events. He lost his job nine months ago producing training videos for a St. Louis company, lost his house to foreclosure, ended up $50,000 in debt and filed for personal bankruptcy late last year.

Without credit cards, he has been unable to make major purchases. “We’re sort of living hand to mouth,” says Pelletier, who relocated to Boise, Idaho, for a job with a general contractor and is renting a home with his wife and two sons.

“The thing that hit me the hardest was that plastic has no emotion to it. Whip it out, use it, done,” he says. “Cash is harder to part with.”
- MSNBC Business Desk

Yes, big purchases may be more difficult as BudgetPulse mentioned earlier. However, not impossible. Those of us whose grandparents grew up in the great depression know that they scrimped and saved and bought everything, including their homes with cash. They also did a lot of the work themselves, when building those homes to. If you think about it, if you borrow, you pay 2 to 3 times the value of that home or car or whatever you are buying on credit. So to pay cash for said item, can be done, if you save that money instead. In a sense make that interest payment to yourself. For example, on the car, if you can afford that payment of $300-$400/month for 4-5 years. Why can't you put it in a savings? In the time that it would take to pay off the bank note, you could have a savings account large enough to buy 2-3 cars. Then if you keep the car for a minimum of 10 years, better yet drive it until it falls apart. Those 3 cars that you have saved up for, will be the only 3 cars you need in your entire life. Warren Buffett, currently the second richest man in the world, doesn't borrow to buy his cars. He also doesn't drive flashy cars. If he spent his money like so many Americans do, he would not have the money that he does.

Still, some worry about their credit score, and going debt free will hurt that. No credit history can as bad as having a bad credit history. However Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc. and author of “Credit Hell – How to Dig Out of Debt,” was quoted in the same article,

But even if you stop using credit right now it will take eight years before you have no credit history. In any case, the positive impact of being debt free on overall economic health generally outweighs any negatives.
- MSNBC Business Desk

I agree, and that is my goal to. I want to be completely debt free. Unfortunately, that will take a little longer for me now, because I borrowed to reside the house. Still, I will get there. I just took a detour.

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