Why do you think credit cards get such a bad reputation?
I recently heard someone on a podcast say that if you’re not going to buy a home or vehicle or take out a loan for a major purchase, it may not be necessary for you to have a credit card.
I pondered that one for a bit. The advice isn’t bad exactly, but something about it felt off.
Dave Ramsey’s Position on Credit Cards
I’d forgotten about the podcast. Earlier today, however, I came across this blurb on Dave Ramsey’s website:
Ramsey Solutions exists to provide biblically based, commonsense education and empowerment that give HOPE to everyone in every walk of life. Our mission to change the world isn’t easy. We experience resistance every day because what we believe is absolutely counter-cultural. We’re weird. We hate debt. We actually cut up our credit cards . . . like, for real. We don’t use them in our entire business. We don’t use debt. Period. Some of us are still fighting our way out of it, but we aren’t going back in.
That excerpt came from a job listing. Since the page could disappear, here’s a link to a page expanding on Daves philosophy on credit cards.
Finally, if you enjoy a little multimedia, here’s a YouTube clip where Dave tackles the question from a caller who can’t understand why Dave is so opposed to credit cards.
If you would rather skip the clip, Dave says using credit cards is like playing with snakes. A person could be responsible and never get bit, but there’s never an upside to using credit cards, only down sides. Millionaires, according to Dave, have never become millionaires because they got cash back or racked up rewards.
Actually, I thought that was an interesting point, so I’m going to paste an excerpt from the expanded credit card page I shared earlier. He writes:
But I get cash back! What about my precious points? Listen, credit card rewards are one of the biggest jokes out there. If you’ve got a card with 5% cash back, you’d have to spend $100 just to get $5. And did you know about 3 out of 10 credit card users don’t redeem their rewards? That’s because many of them expire before you can even use them!
Dave Ramsey’s rationale on credit cards is not bad. Nor was my friend on the podcast wrong for suggesting credit cards may not be necessary. I confess when I set out to write this post, I was ready to go twelve rounds. No one’s going to tell me my credit cards are evil!
But, I see where they’re coming from.
My Position on Credit Cards
I’m going to make purchases regardless of whether I use credit cards or not. I never spend according to my credit line. Rather, I spend according to what’s in my checking account. If there’s not enough money in my checking account to cover the expense at the end of the billing cycle, I have no business spending money.
Since I’m going to dine out and pay bills regardless of the credit cards, I may as well capitalize on the credit card rewards. Skipping these rewards is like leaving money on the table and makes about as much sense as skipping my employer’s retirement match.
Dave Ramsey makes a fair point that no millionaire ever became wealthy through credit card rewards. That’s true. I certainly do not view credit card rewards as a line item on my savings plan, but no millionaire ever passed up an opportunity to generate cash for zero effort.
Then there’s the matter of security. My credit cards have fraud protection. If someone stole my credit card and used it to make purchases, I would not be held responsible for those charges, whereas if I used a debit card, the money would have been pulled out of my account. It gets a little more personal when my actual money is at stake!
Well, dammit, Dave Ramsey had an answer for this too.
If you skipped the clip, he says Visa has a policy that protects you against fraudulent transactions. I found Visas zero liability policy for credit cards. I did not find similar language for debit cards. That could be because it doesn’t exist. Check out the FTCs policy on the issue.
Clark Howard is another financial guru. I don’t know if he’s good or not, but his article making the case against using debit cards is compelling.
Okay, even if we don’t see eye to eye on whether or not debit cards are as secure as credit cards, there are the other perks that make cards worth considering. To name a few:
- Roadside assistance
- Trip delay insurance
- Baggage delay insurance
- Lost luggage reimbursement
- Trip cancellation/disruption
- Travel emergency assistance
- Complimentary airport lounge service
- Global Entry/TSA Pre✔®
- Extended warranty protection
- Purchase protection
These card benefits will vary. You may not want or need all those benefits, but good luck trying to get your debit card to offer even half that list. And, yes, I have had need to utilize some of these perks before. They really do work.
So, Are Credit Cards Bad?
You need to make that decision for yourself. If you know you have poor discipline with money management, then you would be better off following Dave Ramsey’s advice.
According to Value Penguin” “Americans owe $807 billion across almost 506 million card accounts.” Don’t fall victim to credit card debt.
I don’t have anything against Dave Ramsey. He’s an intelligent person who has built an empire off his financial philosophy. He has a clearly defined market, and he’s learned how to capitalize off his formula. I’ll raise my glass to his success.
The right approach to credit cards, in my opinion, is more individualized. If you have proven to yourself you can be responsible with credit, I think it is perfectly reasonable to leverage the perks. Make the credit cards work for you. No, you will never become substantially wealthier as a result of racking up points, but if racking up points is happening in the background, if you faithfully pay your balance every month, you can come to think of those rewards as compensation for being a good financial manager.
What say you? Do you use credit cards? Why or why not? And if you have chosen not to use credit cards, what was your reason for it?