There I was. 18 years old. And I didn’t have a clue.
I didn’t realize that some people were actually debt-free.
I thought a car payment was just another bill. I mean, everyone has a car payment, right?
I thought credit cards were a way of life. I never noticed adults using cash. Only cards.
Enter: Dave Ramsey and “The Total Money Makeover.”
That book changed my life. More specifically, my finances.
All these years later, I still love Dave Ramsey, but now I love credit cards…again, but for a different reason…
Dave Ramsey on Credit Cards
“We want it all, and we can borrow to get it all, before we can afford it all.” -Dave Ramsey
Dave was a millionaire before he went bankrupt in the early 90s. He had a very unhealthy use of credit cards, like most people.
It’s no surprise that he now says: when you’re trying to get out of debt, you should cut up your credit cards and stop using them. I agree that you stop using them, but I don’t think you should cut them up. And let’s be honest here…for most Americans, statistically, they shouldn’t use credit cards.
But for the responsible people out there (like the people who are reading personal finance blogs and books to become a better financial steward), credit cards do have their benefits.
The Total Money Makeover
I find that “The Total Money Makeover” is a great starting place for someone who wants to learn about finances. It creates a great foundation. When I first read it, it was exactly what I needed to hear. Because I wasn’t responsible enough to be using credit cards…yet.
As a sidenote, I realize that some people are never responsible enough to use credit cards. It’s important to recognize and accept that or change it. But if you know you can’t use them responsibly, listen to Dave and cut them up. All of them.
The basic steps of having an emergency fund, using the debt snowball, investing in a Betterment IRA and ultimately, paying off your mortgage are all great things. In fact, the only part of Dave’s overall plan that I differ on is his view that nobody should use credit cards.
Why Dave is Right, But I Still Love Credit Cards
When Dave tells you to stop using credit cards, he may be right.
If you’re trying to work your way out of debt, the worst thing you can do is to keep building more debt by using credit cards irresponsibly. However, I do believe that there comes a point where you can start using credit cards again…maybe. I say maybe, because some people should never use credit cards and you know who you are.
If you can’t control yourself and you’re getting out of debt for your third time, you should probably stay away from them. But once you’re debt-free, you can start exploring the benefits of credit cards. Credit cards offer some amazing benefits. Who wouldn’t want to save up to 6% (sometimes more) on every purchase they make? Cashback and travel rewards make a huge difference in your finances.
If you read “11 Ways to Make Money When You Spend Money“, you know that there are even more ways to get cashback and earn when you spend. Credit cards are just one way.
Who Should Use Credit Cards
Before I go, I think it’s important to reiterate the point (for the third time) that many people shouldn’t use credit cards. Dave Ramsey’s philosophy is directed towards the bulk of Americans, who don’t have any business swiping fake money.
Simply put, if you use credit cards, do this:
- Budget to not spend more than you make
- Pay off the balance, in full, every month
- Have all your credit card debt paid off
- Have an emergency fund in place
It all comes down to responsibility.
If you’re responsible enough to use credit cards, you can reap some great rewards. If you’re irresonsible, avoid credit cards like the plague (or learn to control yourself). It’s not worth putting yourself in piles of credit card debt, just to earn a few rewards.
What do you think about Dave Ramsey? Do you use credit cards?
Author Bio: Kalen Bruce is the founder and main writer at MoneyMiniBlog, where he writes short, sweet and simple articles about money and productivity. Kalen lives a debt-free life with his wife and four children. Get his free ebook here:Financial Freedom on a Full Schedule.
Dave’s book was one of the first I read and it really changed my perspective on debt and personal finance in general. But I agree with you about credit cards, they do have great advantages. And if you can successfully churn some reward bonuses, that’s easy tax free money yea after year.
My thoughts exactly. I’m weary of recommending them to some, but for the responsible people, credit cards are totally worth it.
We’re the same. Love DR and credit him with moving the needle on how we felt about debt. We’re much less tolerant of it and paid off a bunch of it. And for a while we stuck to only debit cards. But for the last few years we’ve used credit cards and paid them off every month. I like the protection and benefits they offer and I like having an electronic record of where we’ve spent our money.
I only used debit cards at first as well. I’m happy with the rewards from credit cards now. 🙂
I know, right?! I love DR too but at age 25, I’m finally getting my first credit card. I’ve decided not to keep following his advice 100%. Yesterday I posted about why I decided to bite the bullet.
Exactly, Will! I think it’s a “bite the fish and spit out the bones” kind of thing. I try to learn from everyone, but not always everything they teach.
That’s why the call it personal finance, need to figure out what works best for your personal situation. Dave was one of the first resource we found when need to dig our of over $100k in debt. His Total Money makeover was just what we needed. I think his ban on CC is fine, he covers probably 90% of the people that will not be responsible with a blanket statement like that.
Right on! Great way to sum it up, Brian.
Dave makes goods points, but for me, I like that credit cards give me a quick way to track expenses. Receipts can easily get lost, so it’s nice to have online statements as a backup. Some card issuers keep those records around for a long time.
Tracking business expenses for tax deductions is an obvious advantage of paying by credit card, but there are other expenditures I might want to track.For example, I need to track any charitable contributions to deduct on your tax return, so I may use a credit card. Same applies for expenses for a rental property, if you have one.
If you ever lose a box of old receipts during a move or, God forbid, a fire, get online and print out copies of those old credit card statements while they’re still available. Yeah, I’mplaying Devil’s advocate a bit, but these are legitimate points FOR credit card use.
I totally think there are legitimate reasons to use credit cards.
I’m the same, I love my credit card now. But back when I was 18 and the bank sent me a pre-approved application form for a Visa with a $2500 limit I had no idea how to use them. I thought I’d won the lottery! Haha, needless to say many years of lessons learnt after that. Now I use them to get air points and pay them off in full every month.
HAHA lessons learned for sure. I’ve been there!
I love his book and it really opened my eyes on everything related to how I handle my money. I don’t have credit cards either and haven’t seen a need for them yet.
That’s great. It’s all about your individual situation.
I absolutely love Dave Ramsey and his tips. I took his Financial Peace University last year and I am a changed woman from it. As far as the credit cards go, I had to cut all six of mine up and I have no plans on using them again. I’m still paying off credit cards, so I’m not in the same situation as someone who is debt free. Personally, I don’t think even then I’ll be able to manage using a credit card again. Somehow, I feel like I would just spend more than I should and end up right back at square one. But, for those who are more disciplined than I, it sounds like a great idea if they follow the tips that you stated. Maybe I’ll get there one day.
Credit cards aren’t for everyone. I think Dave’s books and courses have helped so many and it’s awesome.
We had the same experience and perspective. Aside from blogs, finance books changed everything. Dave Ramsey is one key person I look up to. He is really bright and everyone should know him so that they know how to manage their money.
I love listening to his show still and I’ll keep reading his books!
I love using credit cards as well, but since my cards have no interest on them, I tend to not pay the total balance off every month. I know such a bad habit right?
Glad to read this. Almost every piece of monetary advice out there seems to be geared towards those that are deep in debt and have serious trouble handling their finances. Things like “let your employee take out the money for the 401(k) because you don’t have the discipline to do so”, Use cash instead of credit so you won’t spend too much” another mind trick for the undisciplined.
Yet there is this entire segment of the population that IS responsible, that does have the discipline to pay themselves first without locking up their money in 401(k) for the next 20 years, that do have the discipline to pay off their credit cards at the end of the month.
For these people it is perfectly fine to use credit cards. They are not only convenient; they are also a great tool in tracking your expenses. Like a previous commenter mentioned, credit cards, leave no stone unturned when it comes to tracking your expenses and creating comprehensive budgets. Credit cards in combination with tools like Quicken allow you do a very accurate categorization of expenses.
The reason I would like to see less use of credit cards is because the technology it antiquated and too vulnerable to hacking. Payment systems like Apple Pay (or whatever alternatives may come around) are much better in protecting our transactions and information that goes along with it
Similarly to what you said, when I found and read Dave’s book, it was just what I needed to hear to get started with getting my finances in order. Since then, I’ve been working on paying off debt while simultaneously building an emergency fund. I do think I’ll use credit cards again one day though.
Ramsey has a lot of good points and I do think this one about credit card use is probably one that many more people should follow. Credit cards are useful but can be a disaster if abused. Many people don’t understand the implications of their credit card spending and could benefit from getting rid of them all together. But like any PF advice, its never one size fits all.