Forget Dave Ramsey, 5 Ways I’ve Used Credit Cards to Better My Financial Health
By G.E. Miller • Jan 4th, 2008 • Category: Credit, Dave Ramsey
photo by SqueakyMarmot
I know Dave Ramsey and many financial gurus would crucify me for saying this: ‘keep your credit card’. Key emphasis on the singular. Let me explain. The average American household with at least one credit card has nearly $9,200 in credit card debt, according to CardWeb.com, and the average interest rate runs in the mid- to high teens at any given time. Pretty scary stuff. So let’s just get rid of all those cards, CUT THEM UP!
On the surface that sounds great. And without a doubt, if you have $9,200 in credit card debt, it’s time to cut those credit cards up. Many of us don’t have the composure and fortitude to use credit cards properly. But, it can be done, and using your card properly can be very advantageous. I’ll show you how.
How to Use Credit Cards Properly and Reap Financial Reward:
- NEVER, ever carry a balance from one month to the next. If you do, cut the card. If you don’t, you’re never using your own money for anything. The credit card company might hate you, but so be it.
- Never have more than one credit card at any time. If you’re using them properly, you shouldn’t need to. Having too many will hurt your credit score when its time to get a loan. Having just one, and using it properly can help it.
- Every six months, ask your credit card company for a credit limit increase of a few thousand dollars. You will never need to use these increases, but it will lower your balance to credit limit ratio, which will do wonders for your credit score.
- Find the right card that will give you actual usable perks and read the fine print. I’ve used my Costco American Express card, which pays anywhere from 1 to 5% on my purchases, and have received about a $200 check every year which I then use to purchase food at Costco.
- Only use your card to purchase necessities that you were going to buy anyways. These items include food, heat bills, electric bills, phone bills, and gasoline. This is where the financial haves are separated from the financial have-nots. If having that free pass in your wallet means you don’t hesitate to pull the trigger on luxury items that you don’t need, then a credit card is not for you.
Not to mention, having a credit card also offers the peace of mind that you’re using someone else’s money, and if there were a case of fraud, you could dispute the charges and not be out your life savings. How can anyone feel safe using a direct debit from their bank account for online payments? Credit cards can be a great thing if you use them properly. Don’t let Dave Ramsey tell you otherwise.
Have you found the convenience of using a credit card too hard to resist?
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Don’t listen to all the bullshit about credit cards. If they’re used incorrectly, their worse than the bubonic plague. But used properly, they’re an outstanding financial tool. Helped me countless times. Just pay down those card balances every month, people, and you’ll be fine.
Another great advantage to credit cards - they make tracking your spending super easy! I’ve never kept a budget, but I pay for nearly everything with credit or debit. I’ve been putting my transaction info into Wesabe.com and tacking my spending, which is the closest thing to budgeting I’ve ever done. No need to write anything down on scraps of paper or save receipts for random $2 purchases that would otherwise be paid for with cash. For a non-budgeter (and lazy expense tracker) like me, using credit or debit appropriately is a great solution to keep track of money flow.
Great point Stephanie. There are a few other sites out there, yodlee.com, and mint.com that have similar solutions. Even CC companies are getting in the game. I have an HSBC mastercard, and it gives me a breakdown via spend category.
Great post, I’ve been observing all the points, minus #3 which I’ll have to check out. I completely agree with your post, credit can be a big asset for those who play the game the right way. By just utilizing credit for gas, groceries, and utilities.. you’re netting 2% or so back per year on those purchases. Seems like a no-brainer to me!
I use a costco credit card for the same reason as you. I pay all my bills every month and have very little debt.
But a word of warning for those using cards for the perks - you MUST pay the card off each month not even a day late. One day late and you will get that hefty finance charge and it will QUICKLY eat away at that rebate. I want a big rebate so I charge everything on my card - for a family of six no less… A month’s spending is alot. Missing one payment is costly.
I paid one day late once in the past 4 years. I paid $55 for that privelege. That is 10% of my rebate because of my one day late payment. Ouch. Was it my fault? Absolutely.
But my warning is this: When you say “use them wisely to get the benefit,” be aware that “wisely” is defined as “payment habits are PERFECT.” One single mistake is costly. That is exactly how the credit card companies have structured it and why they make money.
Credit card companies are like casinos. The reality is that on average the house has the odds because they are based on analysis of human behavior. Credit card companies structure their rewards (and the finance charges) to make them money on the whole.
But only a Credit Card Bambi is unaware that is is playing in the wolf’s hunting ground.
Credit cards are a bit like bait. They look good. Those rewards are attractive.
@ John - Very sound advice. A few things to add. I once was late on a payment with HSBC because I had not updated my notifying email address. I called them up to explain it was an accident, and they refunded the charge without hesitation. It never hurts to ask, even if it really is your fault. Also, for those interested in the Costco card, not only can you use the rebate to purchase Costco product, but you can straight up turn it in for cash.
Just stumbled across this site. One thing you failed to mention is that it is infinitely easier to manage discretionary spending on things like food and entertainment using a envelope-based cash system, than throwing everything onto a card. Also, if you’re doing things right, you don’t need the good “credit score” that the credit card is supposedly helping you with. Banks have been just as successful convincing us that we “need” debt as Apple has with iPods, but it’s a lie.
I, too, believe that financial responsibility is the key when using any kind of debt. And the stat about Americans with a card being $9200 in debt is so misleading. This total was calculated by taking all consumers’ debt totals and dividing it by the number of people who said they have at least one credit card.
The fact of the matter is the median credit card balance of those who even have one (40% of credit card users pay them in full each month, while a majority have no credit card debt at all) is $2,200. This means that half of users have a balance below this and half have more. Only about 8% of households have more than a $9,000 balance, and only 14% use more than 50% of the revolving credit card limit. (stats I found from the following site: http://www.creditcards.com/statistics/credit-card-industry-facts-and-personal-debt-statistics.php)
What happens is the statistics are so negatively skewed by those who use credit improperly it makes it look like we are a nation of over spenders. I rarely use the credit card (don’t go over 10% of the available credit limit) I have and always pay the balance in full each month.