debt

Tired of debt? Live off the credit grid

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Highlights
  • Use of revolving credit has declined since the 2008 financial crisis.
  • One woman worked seven jobs to pay her debt and find financial peace.
  • Not using any form of credit can eventually hurt your credit score.

Either out of anxiety or necessity, Americans are reducing their reliance on credit. Use of revolving credit such as credit cards and home equity lines of credit has been in decline since the financial crisis hit in 2008, falling 13 percent in the 4th quarter of 2009 alone, according to Federal Reserve consumer credit data.

Furthermore, only 56 percent of consumers used credit cards at all in 2009, compared to 87 percent in 2007, according to a recent study by the research firm Javelin Strategy & Research.

While many are cutting back on debt but still using credit for their day-to-day finances, some consumers are taking their aversion to debt to another level, dedicating all their financial energy to withdrawing from the credit grid entirely.

Elissa Burton, a financial planner with Francis Financial in New York, says that she has clients who feel uncomfortable carrying any kind of debt, even for big-ticket purchases like homes.

"Some of our clients just hate debt. They can't sleep at night, knowing that they don't own their home outright," says Burton. "Those are the type of people that we recommend either paying cash for their home or paying it off as quickly as possible. It's not a financial decision that makes sense when you crunch the numbers, but for some people it is right."

One woman living off the credit grid

J. Mohammad, a Tennessee-based accountant, decided in 2001 that she'd had enough of the constant stress she felt over $11,000 in credit card debt, her mortgage and a host of other bills. Inspired by Dave Ramsey's radio show on life, money and debt, she decided to pull out all the stops to reach her goal of "financial peace."

To get there, she worked at as many as seven extra jobs, even cleaning buildings at night, and she and her husband kept to a tight budget. It was tough going, but by 2005 she was debt free, having paid off her credit card debt and even her mortgage, she says.

Now, she sticks to a strict budget and banks all the money she used to plow into monthly payments to service debt into savings and a new-car fund.

Benefits of a credit-free lifestyle

Living off the credit grid has a lot of advantages for those who are willing and able to do it, says Lisa Kirchenbauer, president of Omega Wealth Management in Arlington, Va.

"Some of the (benefits) are obvious. If you've been living on credit, you're paying somebody else interest," Kirchenbauer says.

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Not paying interest means you get to keep a lot more of your own money over your lifetime, she says.

Not being dependent on credit can also help you weather bad economic times. Mohammad says she's glad she convinced her siblings to go debt-free. When the economy soured and they were laid off, being debt-free made it a lot easier to stay financially solvent because they didn't have to use scarce resources to service debt.

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