Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of Maple Money, where I’ve been writing about all things related to personal finance since 2009.
If you’ve been listening to the podcast for a while, you’ll know that I’m a big fan of using credit cards responsibly as a tool to earn rewards, build credit, and protect your purchases and travel. Others in the personal finance community believe that the best way to become debt free, and stay that way, is to not allow yourself such easy access to credit.
My guest this week is Steve Stewart, the editor behind not only The MapleMoney Show, but a number of other popular podcasts as well, including Stacking Benjamins, Choose FI, and Afford Anything. Steve and I discuss his journey to becoming debt free, and how avoiding credit cards played a big role in his success.
Kicking off the episode, Steve reveals that he hasn’t used a credit card since 2007, after he and his wife paid off the remainder of their consumer debt. In the years since, they’ve also paid off their mortgage in full, and now live 100% debt free.
Drawing from his own experience, Steve busts some common myths about credit cards, explaining that it actually is possible to book a hotel, or rent a car, without one. He and his wife do their fair share of travelling, and not having a Visa or Mastercard has never been a problem. Instead, they use their Visa Debit card (ATM) for all of their purchases, both in store and online.
Steve and I also discuss credit scores, and he explains why he hates them with a passion. In Steve’s opinion, there’s far too much gamification involved, as people find ways to eek out a few extra points in their favour. Peoples main priority should be to maintain a clean credit report, the overall score is not as important.
While I love playing the credit card game, I realize that there are many Canadians that should not be using credit cards. This week, I encourage you to look at your financial situation. What does your debt situation look like, and what will it take to pay it off? How about your spending patterns?
You might want to try out a budgeting tool, like Mint, to make sure you’re not getting in your own way. Maybe credit cards aren’t for you. They can be a great tool, but not if it’s coming at the expense of paying off debt, or retiring comfortably.
Our sponsor, Borrowell, provides free credit reports, so you can ensure your information is correct, and take the steps to fix your credit, if needed. To get your free credit score and report, head over to Borrowell today.
- Living without a credit card for over 10 years
- The protections of a debit card vs. a credit card are very similar
- Credit cards are not the right choice for everyone
- Regardless of your payment method, you need to have a plan
- The importance of having an emergency fund
- Why Steve hates the concept of the credit score
- Want a good credit score? Just pay your bills on time, it’s that easy
If you’ve been listening to the podcast for a while and certainly if you’ve been reading the blog you’ll know I’m a big fan of using credit cards responsibly as a tool to earn rewards, build credit, and protect your purchases and travel. However, some people in our personal finance circles believe the best way to become debt-free and stay that way is to not allow yourself to have such easy access to spending and debt. Steve Stewart is the editor behind The Maple Money Show and we’re in great company as he also edits podcasts like Stacking Benjamin’s, Choose FI and Afford Anything. Steve became debt-free and a big part of that was avoiding credit cards. Steve shares the story today and gives some great rebuttals to my examples of times we might need a credit card.
Welcome to The Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Later in this episode Steve mentions the importance of checking our credit reports for signs of fraud and other errors. Our sponsor, Borrowell, provides free credit reports so you can ensure it is correct and takes the steps to fix it if needed. To get your free credit report, head over to maplemoney.com/borrowell today. Now let’s chat with Steve…
Tom: Hi Steve, welcome to The Maple Money Show.
Steve: Thanks Tom. Thanks for having me on.
Tom: People that listen to the show or read my blog know I’m very pro credit cards but I do realize there are a lot of issues with credit cards. I wanted to bring you on because you’re very anti-credit card. I guess right from the start. Do you currently use credit cards at all?
Steve: I don’t have a credit card. I haven’t had one in over 10 years.
Tom: Oh, wow!
Steve: Isn’t that amazing?
Tom: How do you live in America or Canada without credit cards?
Steve: I guess you’re going to find out soon.
Tom: Yeah, I agree. I didn’t realize you still didn’t have one. I thought you would have softened your stance but you’re still going without it. What made you decide to no longer use a credit card?
Steve: I’ll try to keep the story short because it really can get into the hole, “I drank the Kool-Aid of Dave Ramsey,” story. I’d listen to him on the radio while I was driving. I used to drive around a lot for work and I’d play the radio because we didn’t have CD players and MP3 players in the car. I’d challenge everything he said but I found out that a lot of what he was said was right and it was me who was the one who just didn’t open my mind to all the other things. I was listening to the traditional advice on credit and borrowing money and leverage and all this other stuff. I also challenged the things where he was using scripture. And I’m Christian so I was saying,” Well, wait a minute. He’s using scripture here about money,” so I dug into a deeper and found out that my belief system really fell in-line with what he was teaching. One of those things was to not borrow money. And as we know, credit cards whether it’s a 30-day revolving credit or just until the next statement comes out, credit cards is borrowing money. I made that decision back in 2007 which was the same time my wife and I decided that we were getting out of debt completely. We’d paid off our last consumer debt which was a car loan. Ever since then I haven’t had a credit card and I haven’t had any consumer debt at all. In fact, in 2015 my wife and I paid off the mortgage early. So we have no debt, period.
Tom: That’s great. I still have a mortgage. I know it’s a common thing to say you’re debt-free but you don’t count that six-figure debt that you’re living in. You stopped using credit cards—how was that at first? I remember when I was in college, before I had a credit card, it was hard to even get into a hotel room. And I don’t mean booking online because it was barely a thing then. I mean, just even getting into a hotel room, they didn’t want you there with some kind of protection.
Steve: Yeah, at first I thought it was going to be really difficult. Before I cut up my last credit card and canceled my last account, I always held onto it because I might need it for something. Travel was one thing and an emergency fund was another. But then I realized I hadn’t actually used one of the credit cards in over six months. All the other ones I’d stopped using before that so I wondered why I ever needed it. At that point, I decided to make the jump. It became easy after that because I had already conditioned myself not to use credit and to just use debit. Now, there are all of the fears, the worries about travel, like you said. My wife and I have taken some fantastic vacations with our daughter. We’ve rented hotels, cars, air—obviously with airfare you don’t need a credit card for that. You can buy that with a debit card. I haven’t found any reason not to use a debit card in place of a credit card, because it has essentially these same protections as a credit card. There are some things in the written words of debit card policies that say you can lose up to $50 and stuff like that. I have talked to people who have had their debit cards compromised and in every single case they’ve lost zero dollars in money. It might have cost them $4 to fax a form. I think that was years ago. Now it’s more electronic and there’s no charge in that. But, all of those fears just went away. So I haven’t had any reason to have a credit card. The debit card has been working great for me. Plus I use cash and things like that.
Tom: You brought up the idea of the risk some people associate with it. And yes, it’s the same in Canada, the $50 liability limit. It seems to me that if it’s coming out your bank account, there’s at least a bit of a risk there just in things unraveling on you a little bit until you get it sorted out—that someone drains out your money. Whereas, if it’s with a credit card it’ draining someone else’s money that was never even really assigned to you once you make that fraud report.
Steve: Agreed, agreed. I get that because the fear is that it’s your bank account and your debit card is that pipeline into the account. People can siphon money out if they get your pin number then you lose the protections. But if they’re using a credit card it goes through the same processes. As long as your debit card has got the Visa or MasterCard logo on it, I know that in the United States and I’m pretty sure it’s the same in Canada, then you’ve got that zero liability protection. Now, your account goes below zero because of fraudulent activity, the zero liability policy doesn’t necessarily cover that. But your bank should be the one that steps in and says, “Okay, we realize that this is theft,” and they should give you some forgiveness. Again, in every case where I’ve talked to someone, they have pretty much rebated all of the late fees if you go below zero. I will say though, you shouldn’t be living your life that close to the edge. If you’ve got $1,000 in there it usually covers most of the fraudulent charges. Most fraudulent charges are not more than $500 or $600. If they are, it’s been going on a little bit longer and they usually hit you up for a $5 thing here. Then they go fill the tank with gas and go buy the $100 shoes. For me, I had a business debit card that was used for a hotel room in the Bellagio. And my bank called me up and said, “Hey, are you in Vegas at the Bellagio?” And I said, “Now, I’m in St. Louis, Missouri. This was not me.” But that was $500. It didn’t drain the account or anything. You shouldn’t be living close to the edge to where you’re worried about those things. And the banks want to keep your business so they’ll work with you on any kind of overdraft fees and things like that as far as your personal bank account is concerned.
Tom: You brought up Visa and MasterCard. Here in Canada, most of the debit cards are commonly referred to as bank cards. Instead of going through Visa or MasterCard we have interact here in Canada. But everything you said holds true. It’s still that $50 liability.
Steve: I’ve not heard of anybody that ever had to pay. Or that they’ve lost money on that. Not a single person ever stepped forward and said, “Yeah, I had to pay $50,” or, “I didn’t get the $50 back.” The banks have always been fair.
Tom: Yeah. I don’t have any personal experience with it. I have had it on the credit card side though, similar to what you said with your debit card. I’ve had the bank reach out and say, “Look, this expense in Boston, is it yours?” And I said, “No, I’ve never been to Boston,” so it definitely wasn’t mine. One thing that concerns me—and I don’t have an example of this happening but, just in the wording with interact tells you that losses resulting from circumstances beyond your control when using interact… Again, I don’t know how this is being enforced but I do worry about what they might consider your control. This could apply to a credit card too for that matter. Not just interact. But just that idea that they could accuse you of being a little too loose with your PIN number or where you left your card or anything like that.
Steve: I obviously don’t know what they mean. I would have to just give you a guess but what it sounds like to me is exactly what you just said. If you’re giving your PIN number away, your PIN number is kind of like your personal thumbprint. You’re saying,” This is me and mine alone.” It’s that almost that dual authentication part where you show your piece of plastic and here’s my four digit PIN number that goes along with it. If they’re not together, then they shouldn’t work. You shouldn’t be all that to run any transactions through this account. So that’s what I think there saying. What was it you said, beyond your control?
Tom: Yeah, beyond your reasonable control. It might just be legally to protect themselves. I don’t know if they’re enforcing it much.
Steve: If I were to show my debit card number on the screen here, there’s somebody who’s going to try and use it. If I gave you my PIN number as well. Well I’m out of luck then. I totally would own that because it’d be stupid for me to do that type of thing. But I think if you take the regular procedures of not sharing your PIN number with anybody, if you’ve got to share it with your spouse at some point, try to encrypt it somehow. Put it written into a safety deposit box. They should have their own access to the money anyway. I’m trying to find reasons. And I really can’t find one of to prove your point.
Tom: I recently had to change my PIN number. I was at Wal-Mart entering it in and thought I was being reasonably protective of it. Then my 9-year-old child yells out the numbers. He was reading it as I was entering it. He didn’t know it before and he didn’t realize the need to not yell that out in the store with hundreds of people around you.
Steve: Wait a minute, Tom. Were you using a debit card?
Tom: Oh no. In Canada the credit cards are almost exactly the same way. We use chip and PIN. I know that in the States you guys are still catching up. You’re starting to have the chip but often no PIN, I believe. While traveling, I can put the chip in but then it comes back out without me entering the PIN and it throws me off a bit because I didn’t authorize that yet. I didn’t enter my PIN. Credit cards and debit cards are very similar in Canada with the chip and PIN.
Steve: I had forgotten about that because I haven’t been to Canada yet. So my apologies.
Tom: No, it’s all good. I don’t expect you to be an expert on Canada. I will admit, one of the biggest issues with credit cards is that, especially for some people, they’re going to be a terrible choice. Because, if you’re using a credit card beyond your means where you’re not using it as a tool but instead to fund your Christmas purchases or something. That’s a huge problem. Can we go into how people can not only live without credit cards but how can they do it by not racking up debt in general?
Steve: How to use debit cards without racking up debt?
Tom: Just how to not use credit cards.
Steve: Whether you’re using debit cards, credit cards, cash, check, Bitcoin, it doesn’t matter because the whole idea is that you pay for what you buy. With debit cards you’re tying the purchase to your bank account so there better be money . With cash it’s obviously immediate. It’s instant. It’s limited because it’s what you have in your physical possession. It’s in your hand. You could try and float a check but it’s the same thing as that debit card where if there’s not enough money in your bank account to cover the payment, you’re in trouble. With credit cards you’ve got that gap, that leeway for 30 days before they’re going to penalize you with the interest charges or overdraft fees or whatever else might come across this. So regardless of what you’re using as your payment method, you need to have a plan in place of what you’re going to spend. I’ going to use the word, budget. Just knowing that you’re going to spend $1,000 or $1,200 or $1,500 or $2,000 in the month of December for all the different things that are going on that don’t usually happen in the months of January, February, March, April, May, June, July, and all the other ones, let’s start saving up for that because we know it’s coming. It’s obvious. There are also things like emergencies. You’re going to have a flat tire, car repairs. We pay for our car insurance every six months so I know that every six months there is… Oh, my gosh! We’ve got an 18-year-old in the house and it’s $1,200 for insurance every six months where it used to be half that for two of us. Those are things that if we weren’t planning for or saving up, we would obviously be sucking everything out of our accounts. I always like the feeling of having a nice safety emergency fund on the side because then I can start to be a little more dangerous in my checking account to where I’ve got—I make $1,000, the bottom limit. One thousand dollars has now become the zero. And then I’ll use something like what we personally use which is called, You Need A Budget. It’s wonderful software that allows you to have these digital envelopes. There’s other digital envelopes and stuff out there or you can just go back the old fashioned paper envelopes and put actual cash in them. But building up incrementally for those charges or expenses that are going to be coming in the future. We’ll use the of the car insurance. We’ll just go to the paper envelope idea or the jar… whatever you want to call it. You know, that’s $200 a month for six months. If I took $200 out of our account every six months, I already know it’s “spent on our insurance,” then by the sixth month I’ve got the $1,200. It’s already been accounted for. It’s not sucking all this money out of my bank account, and I can go and pay the bill with no worries. I could do that digitally as well. We do a lot of stuff every two or three months. We’ll “bank” on the side, our savings for those types of things. Car repair, car replacement, home insurance, life insurance, car insurance. We put those into a higher interest savings account like at an Allied Bank. What’s a good savings account up in Canada?
Tom: We’ve got Tangerine Bank. That would be a good one. EQ bank too. They both have high interest savings accounts.
Steve: Yeah, so we’ll move those for a couple months and earn another three or four dollars in interest. Then when it’s time we’ll move it back into our checking account and pay the bill. So it’s the plan that really needs to be there. You have to plan ahead for these expenses. Going back to what I mentioned earlier which was the emergency fund, just knowing it’s there “just in case” brings a lot of comfort and freedom to your life.
Tom: Yes, not using your credit cards as an emergency fund. The problem of using a credit card as an emergency fund is that it becomes a little too easy to call everything an emergency. When there’s no food around, pizza is now an emergency. It’s a little too easy to spend with the credit card. I have this problem sometimes. I always pay my credit card off in full. It’s not that kind of problem. But I probably do spend more than I would if I had the pain of pulling out cash, pulling out real money instead of just that easy plastic card.
Steve: I know for a fact, because I use my debit card for most of my purchases that I will spend more than if I had the cash for it. I don’t think I spend too much more but sometimes I’ll buy something and even though I know what the price is, I don’t even look at what I spent on the way out. Then I’ll look at the receipt because I’ll start entering it… I like to manually enter my transactions into YNAB. I know it’s old-fashioned but I’ll still enter it into my phone and I’ll say, “Holy moly!, What? Oh yeah, that’s right…” If you’re not looking at our purchases or getting that immediate feedback from handing cash over, there is a tendency to overspend. I’m not saying it does happen every time. I’m saying it could more easily happen.
Tom: I also consider that. For me, it’s the Costco effect. You walk in for five items and before you know it, you’re walking out with some piece of furniture or something like that.
Steve: And the beauty with having something like a YNAB or—I don’t know if Mint does it because I haven’t used it in so many years. But, you can categorize your spending. So, you’ve got groceries, dining, and home expenses like your home repair stuff. Before you walk into the Home Depot or whatever you might have up North there, you’ll look and see you only have $200 in your home repair fund. I can spend up to $200 if I had to. And if not, now I can have a conversation real quick with my wife on the phone saying, “Hey, I need this new storm door. It’s $250. We’ve got $200. What are we going to do?” Then we make the decision there. We’re in agreement. There’s no argument later. There’s no wondering where the money comes from because we had that little bit of a plan to start. We had the conversation going in. That way I was able to pay for it going out.
Tom: I really like that. And yes, Mint does do the tracking as well. I like to look at it—not with every purchase, but once a month or so I certainly look to see if I’m still staying on track. It’s nice to see that you’re sticking to it.
Steve: Does it keep a running tally during the month of what you spent gauged toward what you expected to spend?
Tom: Yes. One thing that annoys me about it is my mortgage is biweekly but I have a monthly budget so every occasional month where I end up with three payments in the month it tells me I’m over budget. I can live with that one minute because I pay my mortgage.
Steve: Yeah, cool.
Tom: Another huge thing that people claim when they want to use credit is that they need to improve their credit score. I think you’re for a credit score but can you walk through how that works when you don’t have access to credit normally?
Steve: Actually, I hate the whole credit score thing. I hate it with a passion. I hate it because we’ve all turned keeping our payment history clean into a game where we want the highest three digit number we can possibly get. I don’t know what the number is in Canada but in the United States we’ve got these three credit reporting agencies and they’ve all got their different measurements but 850 is the highest number you can get. And people are always trying to figure out how to make it better. You don’t use your credit score. You don’t use your credit score. You don’t actually use your credit score ever. The banks will if they’re trying to make you a loan. So I get the idea that you want to have a really good number because the banks like to look at that number and say, “All these other places say that you pay your bills on time. You’ve got a great number so we’ll make you this loan at a lower interest rate.” I get that. I don’t borrow money so I have no need for a credit score— period. I don’t. What I do want though, is to make sure I have a clean credit report. And actually, just this last year—since my wife and I paid off our mortgage in 2015, all the old history of credit cards and the mortgage and everything dropped off my credit report to where I tried to pull the report just to make sure there wasn’t anything goofy going on, they couldn’t pull me a report because there was nothing there. They think I’m dead because I have nothing to report. I have borrowed no money. I’ve paid back no money. I have nothing to report. I essentially don’t exist to Experian, TransUnion, and Equifax which is the three big ones here in the United States. I’m still around. I’m still alive. I’m still able to travel and everything else I need to do. So I don’t worry about a credit score because I’m not trying to play that game. And even if you did have a credit score and you want to improve your credit it’s super, super easy. You don’t have to read all these articles or listen to all these people tell you what to do. The whole credit utilization thing just makes me angry because they’re talking about only using a certain percentage of your available credit card balance. And you’ve got to add up all your cards and do it every month. Just pay your debts and your bills on time. That’s all you need to do and you will have a good credit score. What we don’t want, whether it’s me who doesn’t care about credit at all, or those of you who want to have a good credit score—it doesn’t matter. You don’t want to have bad credit. That’s what you don’t want to have. So you don’t want to not pay your bills on time or not pay them at all. Avoid the late payments, avoid non payment and all that stuff and you’re going to have a good credit score. It’s that easy. Pay your bills and debts on time.
Tom: Yeah, that makes sense. It’s not overly worrying about whether you are in the very good range or the excellent range. Just don’t be in the poor range. I do like what you mentioned about credit reports. Not the part that you can’t get one. It would still be nice to see at least a clear one just so you feel extra secure that nothing has popped up. But I guess you can still check it and if something did show up that’s still your sign that someone might be using your identity.
Steve: Exactly. So, if I go in a pull report it shows something, and obviously it’s not mine because I’ve got a history of not borrowing money now.
Tom: It’s interesting that you disappear completely. I didn’t think about that, that they don’t have anything to track anymore.
Steve: On the traditional credit reporting side, yeah. On the non-traditional way there are ways to do it but we won’t go into that because it doesn’t apply to every country.
Tom: Speaking of that, one thing I did want to go through is can you kind of walk through what a company like e-Credible does because I don’t think there’s anything like that in Canada. And for someone that might need to get a mortgage or something but they don’t want to get a credit card how can they start to establish that? If you can quickly walk through it just to give us an idea what we could be doing here in Canada?
Steve: I totally get that. A bank is going to want to see that you have proof that you pay your bills on time. Let’s say you’re a college student and your parents are paying for your tuition. You bought your car with cash and you’re trying to rent an apartment. Maybe the apartment place wants to make sure you’re a credible person. Well, if you don’t have any traditional credit such as a credit score to look, they’ll think you don’t even you exist. That’s unfair. These credit reporting agencies are biased against people like me who don’t borrow money ever because there’s nothing to show. I get that. I get why they do that. But, it’s still biased against my type of activity. So, if you want to prove that you’re a good credible source you can go through old-fashioned terms especially for a mortgage. There still exists something called, manual underwriting. That’s where the bank actually looks at pay stubs, your electric bills and all that stuff. Now, banks don’t like to do that because it’s time consuming—and time is money. It’s expensive for them to do that so most banks will not do that when you’ve got a traditional credit score. And most people have a credit score. You’re actually the customer here. You’re the one paying e-Credible to do a manual verification of whatever bills you want. By the way, they just launched a business credit product as well which is very interesting. So if you’re a business looking to establish a credit history for your business but you don’t borrow money that’s the way to go. They basically will contact your electric company, your cable, your cell phone bill or whatever and they’ll get manual verification that you’ve been paying your bills on time. Then they will provide that information to your lender. So the lender doesn’t spend any time or effort having to do the work, but they’re still able to do that typical, same type of manual underwriting process just without having to do all the work. That way they’re not just getting you saying you pay all of your bills and debts on time, they’re also getting it to your lender from third-party services. That way it proves that Tom does pay his phone bill, his electric bill and his car insurance every month. That proves that you’re a reliable person and then they can make their determination on how much they’re going to lend you based on other information they’ll ask you for.
Tom: The only option I can think of that we have in Canada right now—and I wish something like what you just described would be here. But the only option I know of is that we have secured credit cards. That’s where someone can put their money down and they’re basically just borrowing from themselves. I’m going to assume you probably don’t like those.
Steve: Well, if it’s a credit card, no, I don’t like those. For many other reasons, not just that. I don’t know what you can do in Canada. I apologize. I know that the United States Experian just launched Experian Boost which does a similar thing of verifying other bills not just debts. But I’ll take your word for it.
Tom: No, no. It’s still good to know about these American options because maybe we can help change that because I like these ideas that there’s other ways to get that credit score that doesn’t involve you going into debt when you’re young just because you’d like to live in a house. Well thanks for being on the show. Can’t tell people where they can find you?
Steve: Sure. Everything I do is over at Stevestewart.me. That’s where you can find everything that I’m doing.
Tom: Sounds great. Thanks for being on show.
Steve: Thanks Tom.
Thanks Steve for the inspiration that people can live with no credit cards. While I love playing the credit card game, I realize there are many Canadians out there that should not be using credit cards. Not just for the risk of not being able to pay off the balance, but also for the increased spending that can derail your goals. You can find the show notes for this episode at maplemoney.com/stevestewart. This week I want you to look at your financial situation. What does your debt look like? What’s it going to take to pay that off? How about your spending patterns? Maybe you should set up Mint for a better review or to see if you’re getting in your own way. Then, think hard about credit. Maybe credit cards are not for you. Rewards and insurance that come with them can be a great perk but not if it’s coming at expensive goals like paying off debt and being able to retire comfortably. Thanks again for listening and I hope you’ll come back next week when we’ll have Nick Drew on to discuss his RV lifestyle.