Dave Ramsey is a much respected author and creator of Financial Peace University. We love the radical change that he has brought about in so many people, trimming debt, providing investing advice and raising the bar for retirement for many people who may not have had this at the forefront of their agendas. He has provided hope for many who thought they were in a hopeless situation of never ending debt and spiraling expenses.
One of his main tenets is against credit cards. He has a point, saying the below in this article!
Before the 1950s, when modern credit cards were introduced, people pretty much bought just what they could pay for in cash. Fast-forward to today: The Federal Reserve says Americans are facing over $1 trillion in credit card debt. And the average credit card debt for a U.S. household carrying a balance is $16,048. Yikes!
In this same article, he posts 6 excuses that people often claim that are behind the credit card obsession.
1. “They’re so easy to use compared to cash.”
This is true. With a credit limit oftentimes far over and beyond the amount of cash you may have in the bank, it is easier to put an expense on a credit card than it is to outright buy it with cash. Go back to the basics, you have to be disciplined and organized to use credit cards.
NEVER put anything on your credit card that you wouldn't otherwise purchase if you were using cash.
2. “They’re great in case of an emergency.”
Again, he makes a very good point here that credit cards have become emergency funds. This should never be the reason for a credit card. Rather, look at some of the real benefits of a credit card in an emergency:
Trip Delay reimbursement
Trip interruption and cancellation
Rental Car insurance
3. “They give us rewards, points, miles, or cash back!”
Dave makes the point that "You have to use the card a lot to earn the perks". This is not true- credit cards provide reward points on everyday purchases you make. Yes- the sign up bonuses often require you to use the card a lot in the hopes that you will continue using their card. Whenever we are about to open a new credit card, we look at the minimum spend required in order to earn the sign up bonus and the length of time that you have to meet that goal. We'll determine whether or not we have these organic expenses coming up. Take for instance our kitchen remodel
Banks are amazing marketers, yes. If no one was paying interest on their credit cards, banks would not have the ability to pay handsome rewards. Go back to the basics- check yourself, get organised, be disciplined!
4. “They’re easy to pay off every month.”
We have set all of our credit card payment due dates to the 16th of the month. This way, when the middle of the month approaches, we know that we need to pay off any balances as we never want to carry a balance. Dave says that it is very easy to slowly increase your spending until those minimum payments didn't seem so bad. Looking back at rebuttal number 1- NEVER put anything on your credit card that you wouldn't otherwise purchase if you were using cash.
5. “They’re necessary to build a credit score.”
In 2018, credit scores are being used for a lot more than just to prove your creditworthiness for future debt obligations you may take out.
Car insurance rates
Having a great credit score should be a goal of every Christian regardless of how we get that credit score. It shows that we are responsible with the resources that have been presented to us, and that we pay off our debts. There are countless places that our payment history is being reported- If you have a cell phone, your payments are being reported each month as to whether or not you are paying on time. If you want a mortgage, your credit score is considered in the interest rate that you will pay.
Likewise, if you have any credit cards at all, paying them off helps build your credit scores and history.
6. “They make our dreams reality.”
I never would have imagined being able to stay in Costa Rica this past Christmas at a hotel WAY above our means had it not been for the rewards points that we had earned. Dave absolutely makes a good point that true joy comes from a sense of contentment.
We have been able to go to more places that we have always wanted to go to because of the rewards that we have earned. Further, because this has meant that we have not had to pay as much out of pocket for these trips, we have been able to bless others as we have had a supply of points to do so and share benefits of credit cards such as lounge access and concierge services.
Sadly, the reason that American banks give out rewards like this is because so many people fall into a trap with credit through the temptation of great sign up bonuses.
Use Dave's principles to Foster Travel:
START using your credit card as you would your debit card/cash.
DON'T buy anything that you would otherwise not be buying if you were using debit card/cash
START seeing credit and rewards as something you can take advantage of
DON'T see credit and rewards as temptation to overspend
START keeping a good budget and sticking to it
DON'T use your credit limit as a loan from the bank- you'll pay for this down the road
START using credit for good!