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If you aren’t familiar with Dave Ramey’s teachings yet, Dave Ramsey is absolutely against credit cards. Most of his teachings encourage you not to use them at all, whether or not you are responsible with them.
Sure, credit cards can be bad for people who can’t control their spending – that much is true. But for the individuals that can control their spending, there are many benefits of using credit cards that Dave Ramsey ignores.
Here’s why I think credit cards aren’t as bad as Dave Ramsey says.
Everyone DOESN’T Spend More with Plastic than Cash
Dave Ramsey overgeneralizes when he says EVERYONE spends more money when they pay with plastic versus cash. This isn’t true of everyone, and it isn’t fair to generalize.
If you know how to use credit cards responsibly, they can work to your advantage. For example, charging your normal monthly expenses and paying them off at the end of the month may lead to cashback rewards, airline miles, or other rewards. What’s not to love about that?
You’d actually earn money using plastic versus paying cash. It’s also easier to keep track of what you’re spending when you use plastic, so you may even spend less.
Credit Card Rewards aren’t Worth It
Speaking of credit card rewards, Dave Ramsey doesn’t think they are worth it. He says consumers waste their money trying to chase useless rewards.
Again, it comes down to using your credit responsibly. If you use your credit card for normal expenses or only use it on items you know you can pay in full before the bill is due, you can earn rewards.
Even if you earn only 1% – 2% back, it’s more than you’d earn on the money in a savings account and it’s hard to argue free money, right? Just make sure your rewards credit card doesn’t charge excessive annual fees and don’t carry a balance.
Debit Cards Offer the Same Fraud Protection
This is another misconception many Dave Ramsey followers were led to believe. Credit cards and debit cards DO NOT offer the same protection.
According to the FTC, if you lose your credit card, at most you’ll have to pay $50 in liability, but most credit card issuers today have a $0 fraud liability.
If you lose your debit card, though, you have 2 business days to report it to limit your losses to $50. If you don’t notice the fraudulent charge or don’t report it for more than 2 business days, you could be liable for the entire amount. You may be able to fight it out with your bank. However, in the meantime, you may not have money to cover your daily expenses and bills.
This is all directly from the FTC – hard to argue with them, right?
Credit Card Companies Won’t Post your Payment Right
This again is an overgeneralization of the credit card industry. Are there times when credit card companies make mistakes?
Sure. Who doesn’t make mistakes?
But, to say that all credit card companies will mistakenly not post your account and you’ll pay late fees and penalties because of it is a bit of an exaggeration. To avoid mistakes or unnecessary fees, always follow up on your payments, make sure they were posted in time and dispute any issues with the credit card company right away before they assess fees and/or report any delinquencies to the credit bureaus.
You can Use Credit Cards Responsibly
Here’s what Dave Ramsey doesn’t say.
You can use credit cards responsibly if you know-how. Most of us weren’t taught personal finances in high school or college. This is why so many people do fall into the credit card trap.
Today there is enough information out there to help you learn how to use credit cards the right way and dare we say to your advantage?
Here’s how:
- Only charge what you can pay off each month – Don’t use credit cards as an extension of your income. Instead, use them as a personal finance tool to earn rewards, give you a little time to pay the balance off, or protect your purchases with an extended warranty.
- Keep track of your spending – Don’t just swipe your plastic without knowing what you’ve spent and how much you owe. Download your credit card company’s app or link your credit card to your budgeting platform and stay on top of it. I personally use YNAB to track my expenses and manage my monthly budget.
- Never charge over 30% of your credit line – You should never max out your credit line. You shouldn’t even go over 30% of it even if you’ll pay it off in full. Having a credit card bill of over 30% of your total available credit limit can hurt your credit score. If you do end up charging more than 30%, make sure to make an ‘extra payment’ before the statement period closes. This will reduce the amount that gets reported to the credit bureaus and will help your credit score.
- Manage your rewards – If you have multiple credit cards, each with revolving rewards, pay attention to which card will pay the largest rewards at the time. Some cards pay a flat rate for any purchase and others pay ‘bonus rates’ for certain categories.
Final Thoughts
So is Dave Ramsey wrong about credit cards?
For the average person, he can be. There are indeed some people that cannot use credit cards, no matter how good their intentions, but that’s not everyone.
If you know how to use credit cards responsibly, you always pay your balance off, and you know how to maximize your rewards, credit cards can be one of the most important financial tools in your personal finance toolbelt!