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Dave Ramsey is famously anti credit card, even though you can earn rewards on your spending if you use them. Read on to learn why.
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Dave Ramsey is anti credit card, and he does not believe that you should use cards even to earn rewards. In fact, Ramsey says card points aren’t worth earning.
There are a few key reasons why Ramsey thinks points aren’t worth it, but the reality is that he’s wrong about many of those reasons. Here’s why.
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Here’s why Ramsey thinks card rewards aren’t worth it
Ramsey believes credit card rewards are not worth earning because:
You’ll spend more on your credit cards in order to earn rewardsYou’ll pay more in credit card interest than the value of your rewardsYou have to spend too much to be able to actually redeem your rewardsYour points may expireYou’ll get hit with annual feesYou’ll pay a high interest rate once any introductory rates expire
Ramsey is very clear that he believes the downsides of using a card outweigh the upside. And, as he points out, “No one ever got rich off credit card points.”
Ramsey is wrong for a whole host of reasons
Although Ramsey has a whole lot of reasons why he thinks you shouldn’t use a rewards card, he’s not right about most of them.
There are plenty of credit card rewards programs out there that have rewards that never expire. And, with many cards — especially cash back cards — there’s either no limit or very low limits on how big your rewards balance needs to be before you can redeem. There are also dozens of cards with no annual fees, and it’s entirely possible to avoid interest charges entirely simply by paying off your balance in full. You can set up automated payments to do that.
As for the claim that no one ever got rich off credit card points — that’s not entirely true either. I have been using a cash back credit card for many years. I have it set up to deposit my card rewards directly into my brokerage account, and I’ve been investing that money steadily into exchange-traded funds. The brokerage account my points go into now has well over $12,000 in it (including both the points I’ve earned and the investment returns). That’s just from credit card points and returns — I haven’t contributed anything else to it.
While that doesn’t make me rich in and of itself, no one has ever gotten rich off passing up a free $12,000. That’s exactly what I would have done had I steered clear of rewards cards, since I would have had to spend the money I charged on my cards anyway.
You have to be careful with credit cards
One thing Ramsey is right about, though, is that consumers do spend more when using a credit card. In fact, research from Shift Credit Card Processing has shown that people spend up to 83% more when using a card versus cash.
The problem is, however, that evidence suggests that this inflated spending happens even when using a debit card versus when using cash. So, unless you are going to take money out of your bank account regularly and walk around with a wallet full of cash and use it for all of your transactions, this isn’t a persuasive reason to pass up rewards cards.
Instead, the best course of action is to just make sure you’re spending responsibly regardless of the payment method you use. You can do that by making a budget or setting spending limits and sticking to them.
If you can be responsible with credit cards — which means repaying your balance in full each month, making payments on time, and not opening more cards than you can easily manage — then you should get a rewards card and use it for everything you possibly can. You will likely find, like I did, that earning free money in the form of credit card rewards is well worth it.
And if you can’t be responsible with your cards, then working on the underlying financial issues that make that the case could be a very good use of your time, as it’s likely that those spending problems will extend into other areas of your life even if you never open a credit card at all.
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