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A couple months ago on the Personal Finance Hour ^[3], I had a nice debate with Baker of ManVsDebt.com ^[4] about whether one should go with credit cards or with a cash-only system. In that episode, I mentioned that I was fan of credit cards because of their rewards and that I have never carried a balance on any card. If I had, my tune about credit card rewards ^[5] might be a little different. Paying 20% in interest really makes 1% cashback look a little foolish.

A point that I never got to make, in part because it was a little off-topic, was that I never had consumer debt because I thought that debt limited your options. Making money is hard enough as it is, you don’t need to be giving up some of it to pay a credit card company for something you bought years ago. Scraping up enough for a down payment on your first home was and is still very difficult. I didn’t need the added pressure of consumer debt following me everywhere I went.

I felt that having the debt hang over me was worse than not buying something I couldn’t pay for that month.

Whenever you have debt, be it $5 you borrowed from your co-worker for lunch yesterday or $5,000 you owe a credit card company, your future is partially determined by someone else. Whether it’s a personal commitment, like $5 to a friend, or a written contractual commitment, as is the case with any sum to a credit card company, you lose control. You’ve acquiesced a small part of your freedom to someone else.

I think that “fear of the unknown” really kept me in line. I don’t know what I’ll be doing in five or ten years, I don’t know what my financial situation will look like, but I do know that having credit card debt will limit my options so I steered clear.

(Photo: alancleaver ^[6])