Credit card advice from the finance guru could make your life more difficult.
- Dave Ramsey has discussed credit cards at length.
- Ramsey suggests that you can build credit without using a card and that credit card rewards aren’t worth it.
- Ramsey isn’t exactly right about credit card rewards and whether they’re worth it.
Dave Ramsey is a well known financial expert with millions of readers and listeners. Ramsey has provided advice on many different topics, but is perhaps best known for his stance against debt.
Ramsey firmly believes that it is possible to live life largely without borrowing, and recommends avoiding credit cards. Unfortunately, his advice on using credit cards could end up negatively affecting his finances, and most people should choose to take a different approach.
So why shouldn’t you listen to Ramsey on credit card use? Here are three big reasons why he is wrong in his position on this issue.
1. Ramsey Says There Are Other Easy Ways to Build Credit, But That’s Not Always True
One of the biggest benefits of credit cards is that they can help you build a good credit score. As you use your cards, you build a positive payment history, which is the most important factor in the credit score formula. Holding a credit card for a long time and keeping the balance below 30% of available credit can also help improve your score.
Ramsey suggests that it’s no big deal to give up these credit-building benefits because there are other ways to “prove that you’re responsible with your money.” He gives examples including paying your cell phone bill, utility bill, and other “regular bills” on time and states that “the right creditor will take it into account.”
In reality, however, utility and cell phone payments are generally not reported to the three major credit reporting agencies, so your history of paying these bills doesn’t help build a positive credit history or get a credit rating. good score.
Also, while it’s sometimes possible to find lenders willing to look at other financial credentials, the vast majority of loan providers and credit card issuers will focus on your credit score. It will unnecessarily narrow your loan options, and possibly make getting a loan, like a mortgage, much more expensive if you listen to Ramsey’s advice.
2. Ramsey Claims Credit Card Points Aren’t Worth It Because of Fees
Credit card rewards are another great benefit of using credit cards, as you can earn free or discounted cash back, merchandise, or travel just for using your card for everyday spending. These rewards can be very valuable, often adding up to hundreds or even thousands of dollars per year.
Unfortunately, Ramsey suggests the rewards aren’t worth it because of “recurring membership fees” and “all the interest you end up paying.” The reality, however, is that it is possible to avoid interest charges altogether if you simply use your cards responsibly. And many cards don’t charge any membership fees, and the ones that do typically provide plenty of other valuable perks, like airline lounge access or free checked bags.
If you’re confident you can pay off your cards before your creditors start charging interest, then there’s absolutely no reason to give up earning rewards for purchases.
3. Ramsey Also Claims Credit Card Rewards Aren’t Worth It Because They Expire
Finally, Ramsey suggests that credit card rewards aren’t worth earning because they expire. This is an odd claim because with most cards, your rewards don’t expire as long as the account remains open. And even if there is an expiration date, you could still benefit from earning rewards simply by redeeming them before they expire.
For these three reasons, you shouldn’t heed Ramsey’s advice about avoiding credit cards. Instead, you should use cards responsibly, choose a card that provides valuable rewards, pay the card in full each month, and make sure you avoid overcharging the card so you can build a good credit score.