September 2018, I made the decision to never use credit again and close the last card that I had sitting around for no reason. That American Express Card was like that security blanket or stuffed animal your kid vowed to never give up. Then that day came when he gave it up. Why? Because he discovered that what he thought provided security really did not.

We had already been completely out of debt for months and we had agreed that we were never going back. But I thought that I could outsmart the system and take advantage of the points and rewards system that was in place. I thought that it was smart to have one “just in case”. I kept it and my wife went along.

The Lie is Loud and Often

I didn’t really believe any of those things, but that is what was preached to me repeatedly. The TV ads told me this was the way. I read it in my research during my MBA coursework. All the people I knew, who looked like they were doing well, were adamant proponents of having and building credit.

But something happened September 2018 that woke me up. My eyes were open to the machine that was making a fortune off brainwashed consumers. We all think we are winning … but really losing a game that is impossible to compete in. I was ready to finish cleaning up the construction site, after debt demolition, so that we could build something beautiful there. I was ready to never use credit again.

My Wake-up Call

During my wake-up call, I realized 4 truths. Using credit only yields:

1. Overspending
2. Living beyond your means
3. Borrowing from your future
4. False sense of security

#1 Reason to Stop Credit Use: Overspending

The first result you get from using credit is overspending … a lot of overspending, whether you realize it or not. I was in denial so I know you may be as well, but I want to challenge you to investigate this for yourself.

Go back to your credit card statements and add up all your spending over the last 6 months. Now track your spending for a couple of months using cash for all purchases for groceries, clothing, eating out, etc. You will be shocked by your behavior change.

The research has been done. I won’t go into all the details here, but there are several studies that show how we spend 10x, 50x, and even 100x when using a form of credit as opposed to cash. If you want to see the fact, don’t just do a Google search, many of the details have been buried. Make sure to check out some scholarly articles and read the real news on this topic. Prepare to be shocked.

You Don’t Even Realize You Are Overspending

In a Psychology Today article, Dr. Hershfield points out research that shows how the pain centers of the brain are triggered when using cash as opposed to using plastic. He concludes, “if we give ourselves opportunities to use a painless payment method, we’ll also be giving ourselves opportunities to overspend.” (Psychology Today)

The credit companies know that we spend more when using their product and therefore find huge marketing efforts worth every penny. Forbes reports that Capital One Financial Corp. and American Express Co. spent an estimated $18.6 million and $13.5 million respectively in 2018 on Facebook ads alone. (Forbes)

They are not stupid. These companies are multi-billion-dollar corporations that have studied consumers like lab rats. They know you better than you know you. But I hear people argue that they have found the way to make money by using a credit card and they never overspend. This is naive.

The truth is that the 5% cashback you are getting is a tiny fraction of the amount you would have saved by using cash. I’m done playing their games. I will never use credit again. How about you?

#2 Reason to Never Use Credit Again: Living Beyond Your Means

The second “benefit” you get from using credit is the ability to buy something when you really don’t have enough money in the bank to buy it. Car loans are a prime example of this. Because most Americans don’t budget and spend every penny they get, when it is time to purchase something that costs thousands of dollars, they think the only way is via credit.

The truth is that we can save up for any purchase no matter how big or small. Here is an example of a car purchase from Experian’s website (Experian):

Let’s say you qualify for a $30,000 loan on a new car with a 3.74% interest rate over 60 months. Your monthly payment would be $549, and you’d pay $2,939 in interest over the life of the loan. If you were to extend your repayment term to 72 months, the monthly payment would drop to $466, but the total interest paid would jump to $3,538.

Of course, Experian sells credit services, so the rest of the article will attempt to convince the reader of how they will benefit from borrowing money. But let me show you a better plan.

The Lie We Tell Ourselves: “I can afford the payment”

You obviously thought you could afford a $549 monthly payment, so I will use that number (Note: you can do this will whatever numbers you like; the results are always the same.) By the way, the average new car payment in America in 2019 was $554 a month.

Buying a car new is always a bad financial move unless you are a millionaire. CarFax reports that a car loses around 20% of its value in the first year and roughly 10% annually thereafter. So, if you came to your senses you would instead buy a 3-year old model.

I like what Chris Hogan, author of Everyday Millionaires, says: “Interest you pay is a penalty. Interest you earn is a reward.” Let’s see how this car purchase looks the smart way!

Let Interest Work for You, Not Against You

So, you decide to get by for 3 years by doing whatever it takes to travel to the places you need to go because you are not ever going back into debt and you have vowed to never use credit again. While toughing it on public transportation, you invest that $549 a month and get a 7% return. (Yes, you can earn an average of 7% annually over 3 years. I do all the time.)

After a long horrible 36 months (not really), you have $21,921 in the bank. During this time, your $30,000 dream car has been depreciating and now has a Kelley Blue Book value of $21,000. So, you look for a private seller who has been the only owner and took good care of it.

Because you have a certified bank check in hand, you tell her that you will take it right now for the amount of the check, which is $18,500, or else you will find another seller of this popular model. You drive away with a “new to you” car and drive to a restaurant to celebrate.

Reality Check

Notice, you would have still been paying from that new car for another two years. If you keep investing that $549 for the next 24 months, of course keeping the $3,421 you had leftover from your great buy, you will have $18,032 at the end of the 60 months. That’s enough to buy a second car!

Let’s review. Option 1: borrow money and have it paid off in 5 years. Option 2: “struggle” for 3 years, buy the same car used, and in 2 years have enough to buy a second one. So, what does credit do for you? It allows you to have what you can’t afford. But by getting the car early, you actually paid double.

You can apply this principal toward any large purchase. It works for buying vacations, buying an iPhone, buying a college degree, and anything else you can think of. A little sacrifice for a short amount of time pays off in a big way when you plan.

#3 Reason to Cancel the Credit: Borrowing From Your Future

The third reason never to use credit again is because using credit really is borrowing from your future. The more you do today on credit, the less you can do tomorrow. So, most people do the same thing tomorrow, which borrows more from the next day. The problem is that it is not a one-for-one ratio.

Every time you use a borrowed dollar today, you take a $1.25 from the next day, so to speak. What you are really doing is robbing your future. Just like you saw in the previous section, buying that car you couldn’t afford today, robbed the potential you would have had 5 years later.

At the end of that story, you would not have bought a second car unless you just happened to need another one. But most likely you would have been able to do something else with that $18k. You would have been able to buy new furniture in cash or go to Hawaii all paid for in cash or given the cash to an organization that is building a new community center.

Instead, the person who borrowed the money would have been just finishing making payments at the end of the 60 months. Now he is trying to finance the furniture he probably doesn’t need or putting the vacation on his MasterCard, or having to say “I can’t” to the call to help with the building project. It is a vicious cycle that needs to stop today. Say it: “Never Use Credit Again!”

#4 Reason to Stop For Good: False Sense of Security

I’ve had calls from people who don’t owe anyone anything and are well on their way to being millionaires. They say they are debt-free. But they tell me that they have one credit card in a drawer “just in case”. This is a false sense of security.

I would not say that they are debt-free. You might think that if they don’t have a balance on their credit card, they must be debt-free. But I look at someone being debt-free when they are free from debt. Someone who is free from the chains of debt is someone who does not need or desire to go back ever. They are truly “free”.

But this person, who had a fully-funded emergency fund, could not let go of the mantra that the credit proponents echo: I have a credit card just in case. Just in case of what, I asked. Give me an example of a situation in which you would need to use credit. Every example of an emergency is either small and easily covered with the emergency fund, or huge where insurance comes into play.

True Debt Freedom

Here is the true problem with the logic of using credit in an emergency. Credit ensues debt. Debt equal risk. And the absolute worst time to increase risk in your life is during an emergency.

Never ever again in my house will there be any type of credit product around just in case. If there is an emergency, we will use the fund we own to protect the wealth we have grown.

Now that you see that credit opens the door to overspending, encourages living beyond your means, results in borrowing from your future, and gives you a false sense of security, will you join me and never use credit again? Are you ready to become genuinely debt free?