There are plenty of mistakes to make when it comes to money – buying things we don’t need, spending above budget and neglecting superannuation. But is having a credit card one of them?

In a study of Australians aged 35 to 55 conducted by REST Industry Super, 25 per cent said they would happily tell their younger selves to avoid getting a credit card in the first place.

Financial planner Amanda Pond was advised to get her first credit card when she and her husband got a home loan 10 years ago. Wary, they locked it in a safe to avoid temptation. One decade later they still haven’t touched it.

“We see it as an emergency back-up if anything was to go wrong,” Ms Pond explains. “Otherwise, we pretty much pretend it doesn’t exist.”

Other people live on their credit cards and pay them off in full each month, banking the rewards points and other benefits, while others pay their banks huge sums in interest for privilege of using someone else’s money to buy the things they want or need.

So why ditch the plastic?

The mental health benefits of ditching debt are obvious, but the potential for growing your personal wealth is also important.

When you’re paying interest on a credit card, what you’re really doing is losing opportunities to invest and accumulate money.

“A lot of people tend to get a credit card and rely on it and think that’s the biggest trap you fall into,” says Ms Pond.

Becoming credit card free isn’t easy, but it can work for some people.

“It’s a slow process but it works,” says Tony Caine, wealth protection specialist at MLC. “Plus, it gives you a sense of achievement when you buy something with your own cash.”

The five step approach

1. Domino your debts

If you’ve gotten used to a life of constant repayments, start by “domino-ing” your debts, Mr Caine says.

“Start with the one that’s the highest interest, pay it off, then move to the next one.”

2. Set up your rainy day fund

Once you’ve eliminated your debt (it can take a while) you have freed up money for what Mr Caine calls your “rainy day fund” – the equivalent of three months of emergency living expenses you can draw on in a crisis.

Start funnelling some of your earnings into this designated fund to give yourself security.

3. Know where you stand

“For me it really comes down to understanding your budget,” Ms Pond says.

“It can be so complicated but it’s easier if you set up different accounts so you know how much you have to spend on each thing.”

Take time to sit down and see what your main expenses are and how much income you’re earning each week.

4. Make it automatic

To keep it simple, set up automatic transfers that kick in the minute your pay cheque arrives.

“When your money comes in, most of it can go straight to savings, investments and bills, leaving you with money to live on,” Mr Caine explains. “If you spend the remainder in one week that’s alright, because you can afford to. It’s guilt-free because you’ve already done all the hard work.”

5. Work for it

If you see something you want like a car, holiday or a pair of shoes, create an account and take time to save for it.

Your patience and hard work will be rewarded when you can buy it outright, stress-free.

Ok. But what are the downsides?

While cutting up your credit card can cut down on stress and debt it can also create some issues you should be aware of before you take the plunge.

Firstly, having no credit card means you may not have a credit report.

“A credit report gives lenders an idea of how many financial products consumers are exposed to and how they are meeting the obligations of those products. Banks use it to assess whether or not they’re a good credit risk,” Damian Paull, CEO of the Australian Retail Credit Association, says.

“People who don’t have credit reports can be excluded from credit markets later on.”

As a result, it pays to do your research. Industry agnostics site CreditSmart.org.au can give you the logistical implications of credit reports and help you make an informed decision.

Additionally, trading a credit card for multiple bank accounts can lead to an increase in bank fees, but Ms Pond thinks the cost is worth the result.

“You can get bank accounts without fees and even if you are paying the fees, the peace of mind you get outweighs that.”

Overall, Ms Pond thinks it’s an informed risk worth taking.

“The only problem I’ve ever encountered was on my honeymoon,” she recalls.

“We couldn’t book into a hotel because I had no credit card to give them! I ended up having to ring my mum and ask her to use her credit card.”

“These days, I just use a Visa debit card that acts like a credit card but uses your own money.”