The Dave Ramsey Credit Card Philosophy
I know Dave Ramsey and many financial gurus would crucify me for saying this: “keep your credit cards”. Let me explain. The average American household credit card debt is $20,221 – and the average interest rate runs in the mid-to-high teens at any given time. That’s pretty scary stuff. So, the popular advice goes, just get rid of all those cards, CUT THEM UP!
On the surface that sounds great. And why wouldn’t you listen to a popular financial guru like Dave Ramsey? Without a doubt, if you have that much 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 explain how.
You’re Wrong, Dave Ramsey. 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 not giving the credit card provider your money. The credit card company might hate you, but so be it.
- Reap the Rewards: use credit cards strategically. There are 5% cash back gas cards, 5% utility cash back cards, and even 6% cash back grocery rewards cards, just for example. Why not get paid back for purchasing what you normally purchase with cash or a debit card?
- Build your Credit: having a strong credit card history can improve your credit score. Periodically, you can ask your credit card company for a credit limit increase to help build your credit. 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. This can help you get jobs (employers are now doing credit checks), get lower rates on loans, and more.
- Use your Perks: some credit cards offer price protection, rental car insurance coverage, free nights at hotels, free visits to airport lounges, free flights, travel insurance, and more. Use the perks or lose them.
- Don’t Change your Purchasing Habits: 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. If there were a case of fraud, you could dispute the charges and not be out your life savings. Take it from someone who has had money stolen from my bank account through a debit card – you should not feel safe using a direct debit card at ATM’s, gas stations, or anywhere else, really.
Credit cards can be a great thing if you use them properly. Don’t let Dave Ramsey tell you otherwise.
Update: I recently gave an enhanced version of Dave Ramsey’s baby steps – check it out.
Dave Ramsey Credit Card Discussion:
What’s your take on Dave Ramsey’s view on credit cards? Do you think he is right or a little too dictatorial and cookie-cutter in his view on credit cards?