Forget Dave Ramsey, 5 Ways I’ve Used Credit Cards to Better My Financial Health
CC photo by MarkLarson
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. On the flip side, canceling longstanding accounts can hurt 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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How to Wipe Out Credit Card Late Fees & Bank Overdrafts
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.
Any financial tool that involves the “withdrawal of” and “repayment of” monetary funds should always be used in moderation, just like with anything else in life. Bills and necessities as the article said, and also in my opinion are a very good use for credit cards. But like John said, make sure you make on time payments. They promote credit cards for nearly everyone, sadly enough we are not all wired to use them correctly and alot of people are putting themselves in uncomfortable positions.
Dave Ramsey’s net worth is more than all of you combined. I’ll take his advice over yours.
Warren Buffet has a credit score of 718, 5 points less than the median. Do you think it really matters to him? No, once you pay those cards off and save your money, pay off your cars (pay for the rest of them with cash) and pay off your home, your net worth will rise and your need to borrow money will be less. In time with smart investing, you’ll have a paid off home and a million dollar net worth. You’ll have a low credit score, but I guess some how you’ll just have to get by.
I’m with Naptown Mike on this one.
Bob Hope once said that “A bank will lend you money if you don’t need it”. Likewise a credit card is useful if you have the money to pay for it… which is exactly when you don’t need a credit card..!
Dave Ramsey would probably castigat eme, as I have three credit cards…
A Discover Gas Card, which I have had for some years but am about to cancel as the rewards have been cut back to the point where it is not worth having.
A Buy.com card that I have had for two years and used twice. Once I have used the introductory credit, I may cancel it.
Another Discover card that I get a free GPS for signing up. Then it may get cancelled.
In the long run I might keep one card (at home, not in my wallet), just in case we have a major (>$1000) expense, since it takes about a week to move funds from my savings (ING Direct) to my Bank. I also advise people to get a low-balance CC ($200 or $500) for online purchases, but generally I use my debit card for merchants I trust.
Personally I prefer to make small purchases in cash rather than Credit; you know where you are with cash, and there are no unpleasant surprises at the end of the month. Also people spend more when using plastic than cash.
You spend 12-18% more by using a credit card vs cash. So how are you 1-5% rewards helping you if you spend more? At McDonald’s you spend 40% on average. How are your rewards helping you?
You are quire right, Jason, but you misunderstand me.
The Discover ONLY gets used for gas - nothing else - and even though I use plastic I still shop around and fill up as if I was paying in cash or debit card. And as I mentioned, that card is going to be canceled soon - when they reduced the bonus down to $5/month it became more of a liability than an asset.
I have never used any kind of plastic in any fast-food establishment. Ever. Also, in Mickey D’s the figure is more like 30-40% extra.
The point is that a CC is only really useful to those who do not need one. I think I am going to have to blog this one in more detail.
Hope this helps.
Prang
All can be done with debit card. Tracking spending etc… Then you never have to worry about interest.
What about travelling? Most debit cards have a max of 2-3000. a day. What if you need more or just want to make a large purchase that goes over the limit.
Good question, though I think you meant $300 a day not $3000. Most banks will raise your ATM limit temporarily if you ask them. I just asked mine and they said “No problem”.
I carry cash or travelers’ checks for the expected expenses, and a Debit card for the little extras. I carried a high-value CC on my last three trips to England. I never used it and was constantly worried about it being stolen. The next time I will not bother.
As for the “unexpected” huge expense, beware of impulsiveness! In my experience, people with CCs tend to act like they have more money then they actually have. “I can’t afford it” is just another way to say “no”.
If you are traveling on business, the business should furnish you with a Credit or Debit Card. I do not pay non-trivial business expenses out of my own pocket, as I am not my employer’s bank. If they won’t trust you with a company CC, they can’t trust you to travel on business.
Prang
By the way, I have closed the Discover card I mentioned above (see my blog for commentary).
There is absolutely no proof of Dave Ramsey’s statement that you spend 12-15% more with credit cards than you do with cash. I can promise you that when I go to the gas pump and fill up, it will cost the same, when I grocery shop, I buy what I need, it costs the same. If you go to McDonald’s and get more than a combo meal, you’re a fat pig. Dave often quotes D&B about this more spend BS. Let me ask you, why would a Commercial Credit Reporting Agency do a study on consumer spending habits. It is also sickening to here a for profit radio show try to pass its self off as a ministry. I love getting the summary with my Amex Platinum Card that shows all my spend for the year, so I have backup for the IRS when I deduct the state sales tax from my fed income tax return, and I love getting into the Airport clubs when I travel, each club membership is more than my annual card fee. Besides Dave’s financial advice is cookie cutter at best.
[...] The three credit cards can be boiled down to one for myself, one I share with my wife, and a third because it basically offered me a free flight and has no annual fee. I don’t carry a month-to-month balance on any of the cards, and only use credit cards in a way to better my financial situation. [...]
@Clay,
>> There is absolutely no proof of Dave Ramsey’s statement that you spend 12-15% more with credit cards than you do with cash. <> It is also sickening to here a for profit radio show try to pass its self off as a ministry.<<
Profit and ministry are not mutually exclusive, and there is a difference between a ministry and a charity. Those who call Dave do not have to pay him. Besides, I have been listening to Dave’s podcasts for years now, and it hasn’t cost me a bean, but it has influenced the way I think about money and debt. How many lives have _you_ changed?
Some people are disciplined enough to spend exactly what they intended, but there are also people out there who are unintentional and disorganized; they are the ones that Dave tries to help. If you don’t need Dave’s advice then don’t listen to him.
Credit-cards are not inherently evil, but many CC companies can be and often are. Pay your rent late? We’ll jack your rate. In a jam? We’ll jack your rate. Car repossessed? We’ll jack your rate. Owe us money? We’ll call and abuse you; we’ll also call your friends and neighbors and say nasty things about you… does that sound like good business practice to you?
Bob Hope once said “A bank will give you money if you can prove that you don’t need it”. Likewise, keeping a credit card “just for emergencies” may discourage people from saving money “just for emergencies”.
I am a fan of Dave Ramsey, though I have two Credit Cards. One has a credit on an online store; once used it’s gone. I received a free GPS for signing up for the other one, and that will be gone a year from now. Both of them remain at home except when I travel overseas. I never carry a balance. Having said all that, I do not recommend Credit Cards; there are too many people out there who desperately wish that they had never seen one, and I don’t want to be accused of the financial equivalent of putting a drink in front of an alcoholic.
I’m glad that your Credit Cards are working for you. Really I am. But using Credit Cards is a form of playing games with money. Some can do it successfully, many cannot.
I recommend that you watch the Documentary “Maxed Out”
Let’s try that again, shall we?
@Clay,
“There is absolutely no proof of Dave Ramsey’s statement that you spend 12-15% more with credit cards than you do with cash.”
Have you ever received an unpleasant surprise when you received a credit-card bill? QED. Also, MacDonald’s did not install card readers at every point-of-sale in the nation out of the goodness of their hearts. They would not have done it if there would be no return on their investment.
Common sense, people-watching and observing how Credit Card Companies operate, I find it empirically believable - not in every case, and the same may apply to Debit cards - but I accept it as fact.
The most disorganized people I know – and the ones who keep the banks and finance companies in business by living beyond their means – use plastic more. The key to living within your means is budgeting. The key to budgeting is to set limits. And for most people the best way to do that is to work with a set amount of cash.
Bottom line: Using plastic encourages people not to think about money – and that leads to spending more.
“It is also sickening to here a for profit radio show try to pass its self off as a ministry.”
Profit and ministry are not mutually exclusive, and there is a difference between a ministry and a charity. Those who call Dave do not have to pay him. Besides, I have been listening to Dave’s podcasts for years now, and it hasn’t cost me a bean, but it has influenced the way I think about money and debt. How many lives have _you_ changed?
Some people are disciplined enough to spend exactly what they intended, but there are also people out there who are unintentional and disorganized; they are the ones that Dave tries to help. If you don’t need Dave’s advice then don’t listen to him.
Credit-cards are not inherently evil, but many CC companies can be and often are. Pay your rent late? We’ll jack your rate. In a jam? We’ll jack your rate. Car repossessed? We’ll jack your rate. Owe us money? We’ll call and abuse you; we’ll also call your friends and neighbors and say nasty things about you… does that sound like good business practice to you?
Bob Hope once said “A bank will give you money if you can prove that you don’t need it”. Likewise, keeping a credit card “just for emergencies” may discourage people from saving money “just for emergencies”.
I am a fan of Dave Ramsey, though I have two Credit Cards. One has a credit on an online store; once used it’s gone. I received a free GPS for signing up for the other one, and that will be gone a year from now. Both of them remain at home except when I travel overseas. I never carry a balance. Having said all that, I do not recommend Credit Cards; there are too many people out there who desperately wish that they had never seen one, and I don’t want to be accused of the financial equivalent of putting a drink in front of an alcoholic.
I’m glad that your Credit Cards are working for you. Really I am. But using Credit Cards is a form of playing games with money. Some can do it successfully, many cannot.
I recommend that you watch the Documentary “Maxed Out”
Credit cards have provided me with $$$$ at 0% interest for past 1.5 - 2 years. I have used this moiney for checking accts that have paid 4-6%APY interest during this period of times. The secret of the 0% credit cards is pay of monthly requirements on the specified dates. Dave does NOT know it all.
Walt, there are no zero percent credit cards. First understand how credit works, the bank does not “loan” you money. They create it out of thin air, manufacture a plastic card then put x amount of credit in a computer system in an account in your name. When you pay on that new money, that was never earned guess who profits 100%? Banks.
If i give you 100 bucks, and you pay me back 100 then it’s even. If i create 100 bucks that i never had, and only created because you asked me, i give it to you, then you paid me back 100, I’m plus 100. That is how it really works, banks don’t loan money they create it out of nothing then charge interest.
Even if you don’t pay a dime interest they still make huge bucks because the money they loan never existed until they received your credit application. Yay you invested 1000 bucks of “their money” and got 60 back…but they got 1000 of your dollars at 100 percent profit. Good job dude.
After being $20k in credit card debt (got one early in college…a trip here…an engagement ring there…you know the drill), we’re one month away from paying off our last credit card. I canceled (GASP!) my MBNA platinum with a $40k limit. I held it for 10 years…didn’t miss payments…$1,500 credit line went to $40k over that time (amazing). I cut it up…canceled it and thoroughly confused the guy with the headset over at MBNA.
I’ve been through Dave Ramsey’s FPU…we’ll soon be debt free but the house…credit cards aren’t worth messing around with. The extra $200 a year at Costco isn’t enough to warrant carrying those stupid things in my wallet again.
Debit card or cash…ahhh, the simple life.
Well done, Jeff. Just wait till you get to that first month without payments! FREEDOM!
Funny how canceling a CC can actually _lower_ your credit score… a score that is raised by getting in debt and staying in debt. But I guess that is another symptom of how screwed-up the system is…
One of the comments above (written ironically by Dave) says, “credit can be a big asset for those who play the game the right way.” And yet Dave Ramsey, whom we are supposed to “forget”, assures that if you play with snakes long enough you are going to get bit. I wonder how your credit assisted wealth portfolio compares to Ramsey’s cash fortified portfolio? You are earning $200 a YEAR on your card? Come on! That’s like 2 weeks of groceries. And according to credit usage statistics, you are overspending by at least that much when you use plastic rather than cash. Your assertion that you are using “other people’s money” belies that you have been deceived, as well. When others put money up for you, a repayment (of your money) is demanded. Until that payment is made, you are a slave to the lender. You have not only surrendered your own money when you swipe that card, but your security as well. If anything should go wrong, your good credit score will not be cause for the snakes to have pity on you, trust me.
I keep a credit card — and pretend I’m writing checks instead of actually using “credit.” By documenting my use of the card on paper, I make sure not to “bounce” the credit card by spending what I don’t have. This way I’ll always be able to pay it off.
Isn’t it miserable that those of us saving cash get a miserable rate of return? How did the banks get away with this? Answer: People didn’t make one yelp.
One part of the problem is that we are not conditioned to ask questions like “what exactly are the $2000 of closing costs for?”
Another part of the problem is that over the past twenty years the banks have gotten to write their own laws.
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