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Is Dave Ramsey right about credit cards?

The popular radio show host says credit cards should be avoided. But do his arguments make sense?

By Karen Datko Jun 2, 2011 9:18AM

This post comes from partner blog The Dough Roller.


According to Dave Ramsey, and I quote, "Responsible use of a credit card does not exist." He then goes on to add that there "is NO positive side to credit card use." These quotes come from Dave's website in an article entitled, "The truth about credit card debt."


When I hear this extreme view, my mind immediately recalls saving thousands of dollars and getting out of debt faster with credit cards that offer balance transfers. I also remember all of the vacations we've taken for free or for substantially less than full price because of travel reward credit cards -- Guatemala, London, Detroit (don't ask).


So I decided to dig deeper into Dave Ramsey's view on credit cards. What I found shocked me. He certainly has a few reasonable arguments against the use of credit cards. But his extreme view that it is impossible to use credit cards responsibly is based on arguments that are frankly irrational and paranoid. So let's take a look at why Dave Ramsey thinks credit cards are evil.


You spend more with plastic than cash. Dave's main beef about credit cards is his view that you will spend more money if you pay with credit cards than if you pay cash. That statement is of course a gross over-generalization for two reasons. First, while some people will spend more money using plastic than cash, not everybody does. In fact, one study by Carnegie Mellon University found that in some cases using a credit card actually reduced spending.


Second, certain types of spending are insulated from overspending. For example, we use the Capital One Venture Rewards credit card to pay our cellphone bill each month. The cellphone bill is the same each and every month. Paying with cash or by check wouldn't reduce the cost. The same is true for buying gas, paying for health care, and making certain charitable contributions.


Still, the notion that some folks will spend more with credit cards in certain circumstances than if they paid with cash is undoubtedly true. It's just not true for everybody all the time. Dave's claim to the contrary is simply wrong.


But then Dave goes on to harpoon credit card rebates, although his logic is twisted. He writes:

If you were using a credit card at 5%, you would have had to have spent $80,000 to get $4,000 rebates on new cars that lost $6,000 of value when you drove them off the lot. That is not a good deal!

Huh? First, the $6,000 in lost value would be true even if you paid with cash. Second, if his point is not to buy a new car, fine, but what's that got to do with taking advantage of a 5% cash-back rebate offer? This example is timely for me, as we are about to buy a Hyundai Sonata Hybrid, and I plan to use a rewards credit card if the dealer will let me.


Millionaires don't get rich on credit card rewards. In one of his radio shows, Ramsey also said he had met thousands of millionaires, none of whom told him that they got rich off of credit card rewards. While his claim is undoubtedly true, it's also pointless. In the legal world, we call that a "straw man" argument. Nobody I know of has ever suggested that credit card rewards will make you rich. But why would you turn away free money? Post continues after video.

Credit card companies will "misplace" your payment and charge you a late fee. This is where paranoia takes over for Dave and credit cards. In response to a caller's question, Dave claims that credit card companies will eventually "lose" your payment, forget to post your payment on time, and then charge you a late penalty. Don't believe me? Check out this clip. Dave's claim that credit card companies will intentionally "lose" your payment in order to charge a late fee is near the one-minute mark.


This is just plain silly. Here's the deal: If avoiding credit cards is best for you and your family, by all means don't use them. On the other hand, if you can control your credit card use, then by all means take advantage of cash-back or travel rewards. We do, and most of our trip to the Grand Canyon this summer will be paid for in travel rewards from Capital One and American Express.


More on The Dough Roller and MSN Money:

Jun 2, 2011 2:24PM
You need to remember on his radio show he is addressing a large audience so he has to use blanket statements.  It isn't possible for him to address each situation individually.  Society as a whole would be much better off by using his advice as there are many less disciplined people then careless who can't control their urges.  Congratulations if you are one of the disciplined and have used these programs to your advantage but for society as a whole it is very good advice.

Remember if the credit card companies didn't profit by getting people to use their cards for "rewards" then the programs wouldn't exist in the first place.

Jun 2, 2011 2:33PM
More studies than not show that you spend more with a credit card versus using cash.  One of the most recent studies was done at McDonald’s.  They see their average sale go from $4.50 to $7 when people use plastic.   Other studies show that most consumers spend an average of 15% more when using plastic vs. cash.  Researches at Carnegie Mellon, Stanford, & MIT found that our brains experience a pain-like reaction to the immediacy of using cash. Using credit cards numbs us so we don’t experience that "pain."  You are going to find studies that support both sides of any issue, but in this case, the majority of them support the fact that people spend more using credit cards instead of cash. 
Jun 2, 2011 11:51PM

Wow!  If any article has ever missed the point with respect to what Ramsey is all about, this would be it.


On the cards cause more harm than good...again that is on the whole...


Pay off your card every month blah blah blah...The whole credit card business model is based on getting people to carry balances...keep the suckers paying as long as possible.  It is a sheer numbers game.  X=people who carry a balance. Y=people who pay balance monthly and actually earn a reward...I guarantee X is substantially greater than Y.

Jun 2, 2011 10:24AM
YIKES!  In the 20+ years I have been using credit cards, not ONCE has a bank lost my payment, or posted it late.  Never ever ever ever.  I have maybe made one payment one day late, and my bank never even charged me for it, and didn't need to ask to have it waived.  I guess that is one advantage of paying your bill on time and in full every month.  Which brings me to:   Not everyone is so irresponsible that they go insane with a credit card.  OK, maybe most of his "fans" do, and therefore can't use credit cards as they should be used, but to make a blanket statement is grossly irresponsible.  And I don't like being lumped in with the losers who are looking for a free ride, and are shocked that they actually have to pay back that vacation, or whatever they bought that they cannot afford.  I can't tell you how many people are in denial - and insist the only reason I can pay my balance in full is because I must be "rich",  and absolutely refuse to believe that I never charge anything I can't pay with cash at that moment.  I'm not "rich" just realistic.
Jun 2, 2011 3:27PM
Dave's program is for people that have not managed their personal finances well including credit cards.  So, if his advice does not apply to you then good.

If you truly comprehend his entire message and program you will realize that you won't need credit cards because you will have all the cash you need to make your purchases and pay bills.

Jun 3, 2011 3:31AM

Whether you agree with Ramsey on the credit card issue, you can't argue that he offers excellent advice for the vast majority of Americans. You see articles and polls on MSN all the time punctuating just how financially irresponsible we are, as a country.


Only a small minority of Americans have a decent nest egg saved, and most people live paycheck to paycheck, planning to just barely make it to retirement, where they'll attempt to scrape by on what's left of Social Security. (Hint: that's not going to work in 10-20 years).


Keep in mind that Dave's advice is for the average person, not the small minority of financially-responsible people who can control their spending. Ramsey offers common sense advice that will get debt-plagued Americans from emergency status to millionaire status with a little hard work and some realisitc goals.

Jun 3, 2011 2:40AM
clearly you don't see the real world.  sure many people pay off their credit cards each month.  however, many. many do not.  that is why things like Debt consulting and bankrupt firms fill the airways and advertise so much.  millions of people run their credit cards up to crazy amounts.  I knew someone that over $90,000 in credit card debt and was losing their home because they could not pay all the bills.  Myself, I had over $50,000 in credit card debt.   I took Daves class and in three years I was debt free and owned my cars,  had no credit cards,  and now have money in the bank.   so say what you will about the man,  his plan works if you listen and follow it. I don't care if you believe it or not, but making is sound like most people can use credit cards safely is not the average, else there would not be a debate about it. 
Jun 2, 2011 3:38PM
Our church has been doing one of his workshops. These are for people who are in dept and what to get out. One of the reasons this country is in trouble is because of people who been living beyond their means on credit. Many are tempted to spend more on a credit card then they would with cash of course. My husband did. A person has to be disiplined to maintain a healthly use of credit cards and work the system. I used the balance transfer options to get US out of debt when my husband's credit card spending got out of control.I also used the Discover Card's insurance option to pay off my debt if somthing happened. It did. My husband died 3 1/4 months after I signed up and they had to forgive $8,000. of my debt to them. They were not happy and fought me on it but I won. I use certain cards for cash back at gas stations and restaurants, others for airline miles,  others for 5% back at drug and grocery store. I put stickers on each one each month so I know which one is giving me the best deal. I shop with lists so I don't overspend. I get back giftcards for dinners out, free flights to see family, coupons for  dollars off from the banks at various shops and restaurants. Yes, cards are bad for people who don't get it, but they also work your credit rating.
Jun 3, 2011 12:37AM

I believe that everyone who pays cash should get a 3 to 5% discount.  If you don't use credit cards, you shouldn't have to pay the fee.

Jun 2, 2011 6:57PM
Dave Ramsey is good at what he does, which is helping people with ZERO Financial knowledge.  And let's be honest, the vast majority of people out there don't know much about how to work with their finances.  When that is the case Ramsey is a good choice; don't spend money on junk, don't use Credit Cards, SAVE, pay down debt.  GREAT IDEAS!  However, if you are responsible, are saving, planning retirement, etc Credit Cards aren't a bad idea.  But you have to look at his audience, not to how he can help you, because if you are on this site I doubt you have a lack of financial knowledge.
Jun 2, 2011 2:33PM

While I have found Dave Ramsey has some very good and pertinent financial advice I haven't been able to totally agree on this point with him. I think credit cards like any other financial instruments are a tool if used properly or a trap if used improperly.


It comes down to what works out better financially for that individual or family. Some will find it to be a good exercise in self-control while others will find it a trap.


The person who has the credit card and uses it wisely is the wisest compared to the one who simply doesn't have a credit card and therefore can't use it. My reasoning is this: First, you control the card and the card does not control you. Second, having a credit card and using it wisely will improve your credit score as time goes on.

Jun 2, 2011 11:39AM
It is obvious that you work for A major Card company and by piling all of the crap that you can on top of Mr. Ramsey  you will never make him smell as bad as your bad mouthing his proven policies that have saved thousands from getting into more dept than they can handle.
Jun 3, 2011 6:50AM
Dave Ramsey's logic doesn't work for everyone as the author says. I feel I actually spend less as when my statement comes in I am held accountable for those purchases. I can track my spending and by purchasing with a credit card you have a valuable tool when preparing income tax and verifying deducitions. Sorry I use them as much as I the rewrds!
May 24, 2012 2:18PM
This article is bad, and the person who wrote it should feel bad.
Nov 29, 2013 9:54PM
Ummm, I actually had Sallie Mae "misplace" my payment and charge me a late fee.  It was a pain dealing with them and getting it fixed....  So unlike in your fairy tale world where you wrote this article, in real life that stuff really does happen!
Dec 1, 2011 10:20PM

All I was trying to fond out was if you had credit cards that were stolen 30 years ago, and these creditors are still trying to hold you accountable.  Is this right when you paid what you had charged on the credit cards that were stolen?



Feb 16, 2014 3:31PM
I don't get how people can say Credit Cards don't add any value and there are no positives. If you apply for a rewards card and use it INSTEAD of your debit card (still making all the same purchases as you would of when using a DC or cash) then you're literally getting free rewards. That's the value it brings to your life, are you really going to turn down free rewards such as airline tickets or additional cash back into your account? The problem is people listen to Dave Ramsey like they listen to religion, most of the time, they don't have an open mind to hear what others have to say from the opposite side so they'll immediately turn it down and say your the devil. Others are under the assumption that everyone will instantly go overspend and get themselves into debt, while it is true majority of America misuse credit cards you can't make the claim that they're absolutely no positives to credit cards.
Jun 3, 2011 11:30PM
gumballs: no, it seems to be you and several others who have missed the point (see my post below).
Jun 3, 2011 12:48AM
Who the hell is this guy? What an idiot!  Hey dude, you pay with cash.  If you don't have the money don't buy it, ****.  This guy is probably associated with a bank in some manner.  Obviously he has never tried to get a mortgage modification.  I know! He owns a credit repair company!
Jun 3, 2011 11:27PM

Ramsey ought to know better than to give cookie-cutter advice.


He may not like what I buy with my credit card, but that's not his business unless I am in trouble.  But I'm not.  The fact is, I pay my bills in full and on time, and have savings.


I saw a couple credit cards offering 0% APR for a year, sometimes 15 months, and an extra $100 for signing up.  If somebody was making a large purchase, who's crazier -- the one who pays it all up front and puts himself in a tight spot in the meantime, or the one who spreads it out and pays a portion every month while accruing promotional rewards?  This was my reasoning in applying.  Even in the unlikely event that I experienced some crisis, I had an emergency cushion that under normal circumstances I would not touch, and I would have had the better part of a year to figure out what I would do.  Let's say you buy something for $1200 and a crisis happens in month 11: if you've been putting down $100 every month, by then you'd have it almost paid off anyway.


Schmitty: you may be right, but the whole point is that Ramsey's comments aren't geared toward "a majority," they ostensibly apply to everybody.  He's saying it's impossible.  And by virtue of that, he's simply wrong.

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