I Don’t Agree with the Dave Ramsey Philosphy, I Use My Credit Cards Responsibly

November 11, 2006 at 6:20 am 15 comments

Okay, so you know I am a fellow Ramsinian. I believe in what Dave teaches and I love his Dave-isms. I also love that I no longer have any credit cards and I feel more financially free than back when I was living my parents and had everything paid for. But, every once in a while, I’ll run into someone who doesn’t think that credit cards are bad because they use them responsibly. They pay the balance off every month and they get airline miles, cash rebates for vehicles, as well as the cash rebates at the year’s end. So what’s so bad about that?

Okay. What is responsible? Dictionary.com has several definitions for responsible, one of which is the characterization of good judgement or sound thinking. I feel that the issue begins with income, or the money you have. Good judgement and sound thinking begin there. Why are credit cards needed if you have the money in the first place? You’re obviously able to pay off the balance monthly, why not use your own money? At least then there is no possibility of late payments, annual fees for paying off your balances, or a statement being lost in the mail. It hasn’t happened to you yet? Well, I suppose it could never happen right?

Now, I posed the question: Why do you use a credit card if you have the money in the first place? Because, I can’t get airline miles otherwise. Or cash rebates. Okay, I’ll give you that. Those are seemingly nice perks to using plastic. But, now, let’s do the math.

Dunn & Bradstreet conducted a study that showed that consumers spend, on average, 12% to 18% more money when using credit cards. Those annual cash rebates come in at a 1% to 5% return. You do the math.

While folks think they are taking advantage of the perks these cards offer, there are people like me that don’t like to play games where we don’t make the rules. These credit card companies know what they’re doing. Unfortunately, there are a lot of people who are buying it, hook, line, and sinker.

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Entry filed under: Credit Cards, Soap Box.

Forget About How Much You Make and Focus On What You Keep The NIL Principle

15 Comments Add your own

  • 1. Ralph  |  November 11, 2006 at 6:58 am

    You can’t use what the *average* consumer does (spend 12% to 18% more when using a CC) as a guide to what a CC user who pays it off in full each month does. I don’t have any supporting stats, but I know that *I* don’t spend any more when using the CC than I would with cash, cheque, BPay or debit card – it’s exactly the same shopping (for food, bill payments etc), just a different form of payment.

    In this case, using a CC “responsibly” means you’re getting an extra, say, 1.5% off the purchase price via the reward pts – either air miles, or, in my case, I can redeem the pts for a payment off my CC balance, so its as good as a cash discount. I put ALL my standard shopping and bill payments on CC (except those billers who charge a 1% “service fee” for payments by CC), so I get around $360 pa rebate paid off my CC bill, and I only pay an annual $18 fee for using the CC, and never pay any interest on unpaid balances.

    Another thing CC are good for is getting a 0% balance transfer offer and investing the money in an online savings account – I currently have $18,000,00 at 0% via balance transfer offers, invested at 5.9% for six months. So, I’ll get an extra $531 by having and using CC responsibly.

    Of course, this is only possible if you have been using CC responsibly and have a good enough credit rating to get 0% balance transfer offers from the bank. And then you have to stick to your plan and invest the 0% money, not blow it on extra spending.

    You don’t have to make the rules to play the game, just understand the rules properly and stick to your game plan.

    Yes, CC are dangerous in the wrong hands, just like matches – but this doesn’t mean we should all ditch them for fear of getting burned.

    Regards
    http://enoughwealth.blogspot.com

    Reply
  • 2. Frugal Frugalson  |  November 11, 2006 at 4:26 pm

    You’re confusing payment method with poor spending habits.

    I carefully scrutinize every purchase whether I pay it with cash, credit cards, or wampum. I pay my credit card in full every month and never pay interest or late fees.

    Some people aren’t responsible or sophisticated enough to use credit cards wisely, but I am not one of them…

    Reply
  • 3. chaka42  |  November 11, 2006 at 7:55 pm

    Thanks for the comments guys. I know this is a controversial topic these days because credit cards are so ingrained in our culture. And, to even consider living without them, is just plain crazy! Right?!

    I challenge anybody to try something. Look at your budget (if you have one) or your cc statement and add up what your typical grocery expenses are for one month. Take some cash out for that amount, for one month, and use the cash. It’s amazing the psychological impact that that cash has when you’re shopping for groceries. Just try it once or twice, and you’ll see what I mean. If you don’t do it, no love lost. But, it’s a simple challenge. If I’m wrong, then I’m wrong.

    I understand the rebates and rewards that plastic brings. I also understand that for 78% of Americans, that doesn’t work. You may pay off the balance each month, and kudos for that. But for me, cc can stick it where the sun don’t shine. 🙂

    In regards to understanding the rules these cc companies make, I suggest you read this article from Business Week (http://www.businessweek.com/magazine/content/06_45/b4008048.htm?chan=search)
    . I’m amazed that our culture is so ingrained with this idea of cc that they overlook what these companies are doing. You see more passion from folks over animals than we do people and their financial state. Food for thought.

    I’m not convinced that this has anything to do with sophistication. Heck, most millionaires didn’t become millionaires because they were more sophisticated than others. They simply had a plan and followed it.

    Thanks for the feedback guys. I knew this was a touchy subject to broach, but, this is something I’m passionate about.

    Reply
  • 4. Frugal Frugalson  |  November 12, 2006 at 4:09 pm

    I challenge anybody to try something. Look at your budget (if you have one) or your cc statement and add up what your typical grocery expenses are for one month. Take some cash out for that amount, for one month, and use the cash. It’s amazing the psychological impact that that cash has when you’re shopping for groceries. Just try it once or twice, and you’ll see what I mean. If you don’t do it, no love lost. But, it’s a simple challenge. If I’m wrong, then I’m wrong.

    I don’t see how this will make a difference, since I scrutinize every purchase that I make. This is particularly true for me with grocery expenses, as can be seen with the grocery shopping strategy I have shared on my blog: Strategy: How to Save Money on Groceries.

    Reply
  • 5. Mona@TimeToBudget  |  January 8, 2007 at 8:11 pm

    Ohh! I love touch subjects. chaka42 I agree with you total. I am a fellow Dave Ramsey fan. Not only do I think using credit cards is foolish I also think it will robe you of any goals of becoming financially free. Yes, I know there are those that claim to be “responsible” but how is borrowing money ever considered responsible. Borrrowing money should not be something we seek even if we get those so called “rewards”. Being financially stable means you use your own money. I wish Americans ( I am an American btw) would get their heads out of their butts and finally realize that. Many countries/people live quite well without credit card use.
    One thing I think many people forget when they play the so called “responsible credit card use” game is what happens in an emergency? What if you loose your job? A health emergency, a family emergency? Do you think paying off the credit card will be your first concern when an emergency happens? Not likely. So it this case “pay it off at the end of the month” game becomes a catch up game. Not to mention the interest you may be stuck with.
    So I say to Ralph, Frugal Frugalson and any other other person wanting to play the credit card game, go ahead and play the game but remember that it will bite you in the butt one of these days.
    My husband and I have decided never to borrow from credit cards again. Actually the only time we will ever consider borrowing money again would be on a 15 year home loan.
    I also agree with you about using cash. It is amazing how using cash changes they way you think about shopping. When you have $50 cash to spend on groceries you really have to think about what your buying.
    Great post. Check out my blog. I write a lot about Dave Ramsey topics > Time To Budget

    Reply
  • 6. Sherry  |  March 11, 2007 at 10:37 pm

    I have to put in my two cents when it comes to using a credit card for all my purchases. I happen to believe in getting a cash back reward for just using my credit card instead of cash. Of course you only purchase what you can afford to pay off the following month, how difficult is that?

    You don’t make the rules for the credit card money game so all you have to do is follow their rules and reap the rewards of using other peoples money for a month free of charge and pay the balance in full to receive a cash back reward at the end of the year. That’s a no brainer to me!

    Anyone who spends more money just because they use a credit card is not what you would call a responsible person and they are the ones that are bad at math, not everyone else. Doing the math is rather simple, pay your balance in full each month and you too could be reaping a cash back rewards check at the end of the year.

    Reply
  • 7. Mike  |  August 27, 2007 at 2:05 pm

    Let’s look at it from another angle. When you say “I understand the rebates and rewards that plastic brings. I also understand that for 78% of Americans, that doesn’t work.” You’re also saying that for 22% of Americans it does work.
    Now let’s be honest. If you follow all of Dave’s principles except the CC ban you’d still do great!. You would not spend more because you have a monthly budget. With that budget in place you couldn’t spend more because you’re on a budget (I sound like Dave now, because I’m repeating myself).
    And for Mona@TimeToBudget What do you mean what happens in an emergency!? You use the emergency fund! Simple. “But, most people who use credit cards don’t have an emergency fund” Don’t give me that crap. I’m talking about people who are using wise money management principles (or Dave’s principles for the zealots) not the financial drunks who call Dave regularly.
    I know Dave likes to use all those figures and such in defending this principle and there are people who need to hear this. However, Even Dave told a guy he’ll do fine with his money after they had a lengthy conversation about his CC use.
    It’s like telling a child not to go into the road and showing him pictures of kids who have been hit by cars. Eventually that kid grows us and know when to go into the road and when not to. Unless he is incapable of controlling himself and thus a danger to himself (like the 78% mentioned). But, I’m not going to get rid of roads because of dumb kids and I think the other 22% agree that they are just fine.

    Reply
  • 8. Darin  |  August 30, 2007 at 8:01 am

    We had this question come up last night in our first FPU session.

    My wife and I (we’re the facilitators) talked about it on the way home. The argument brought up was that one or two people in the class save 5% on gas by using certain cards.

    We had the standard answers, but I think it came down to this. Our gas budget for an entire year is around $4200. Say you actually do use that card and get 5% on the entire amount. That’s a whopping $210 saved. That’s $4.04 per week, not even one meal at Taco Bell.

    Is it really worth the effort? I’d rather spend that effort making some real money, not taking some risk (yes small if you’re responsible but forget to make the payment once and $35+ is gone) just to save $4/week. Heck, we do that just by eating macaroni/cheese one dinner/week.

    Having that card is just one more thing to have to make a payment on, one more thing to think about, etc.

    With Discover, you have to spend $2000 just to get a $25 gift card to eat out on. That’s a lot of money just to get a meal.

    Reply
  • 9. wourcegor  |  October 30, 2007 at 5:07 pm

    You don’t really need or want that lifestyle, it might hurt y’all slowly more…….Just tell him you
    don’t wanna repeat something your not too proud of z7uas.

    Reply
  • 10. Christine  |  February 15, 2008 at 4:52 pm

    I live in New York City. I’m a college student, so I live in a cheap apartment in a dangerous area. I use credit cards because I’m afraid to walk around with cash.
    Nuff said.

    Reply
  • 11. Jerome  |  March 23, 2008 at 10:33 pm

    I use my credit card for convinience of not holding cash around. It’s cleaner and healthier with these personal plastics:)

    Reply
  • 12. Shurretuice  |  October 29, 2008 at 8:27 pm

    I read some of the posts and I think it is a great place! I can get boistrous with my tame race Oh, good joke) Why did the vampire give his girlfriend a blood test? To see if she was his type.

    Reply
  • 13. Janine Platman  |  April 7, 2009 at 12:19 pm

    As long as you have a budget when you walk into a store that there isn’t anything wrong with using a credit card and getting a rebate.

    I have actually forgotten to pay a card because I thought it was zero and my husband accidentally used it incorrectly. I was charged but had it removed. If you are a good enough customer generally, I never had to pay, you can get a late charge removed. If they don’t remove it drop them.

    I have make all my utilities on the card and still try to reduce my costs but I get 3% back. Funny I don’t figure that in when buying stuff I am always looking for the best deal.

    I see using credit cards like using coupons. You need to not be tempted and stay on focus otherwise you end up buying chips and cookies and no stables.

    There is no one way to become a millionaire and what works for one might not work for another.

    But by getting rid of your credit and hurting your credit score you will be hurting your ability to shop around and get a better price on insurance. Many insurance companies use the FICO score to determine how much they will charge.

    Reply
  • 14. Odorsesoifime  |  June 3, 2009 at 10:58 pm

    Sweet blog. I never know what I am going to come across next. I think you should do more posting as you have some pretty intelligent stuff to say.

    I’ll be watching you . 🙂

    Reply
  • 15. Hayley  |  November 26, 2012 at 1:12 am

    I do not even know how I ended up here, but I thought this post
    was good. I do not know who you are but definitely you’re going to a famous blogger if you are not already 😉 Cheers!

    Reply

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