Before I start getting hate comments, let me explain something. I love Dave Ramsey and I love how he works, what he does is amazing and a lot of what I do now to handle my finances is because of what I’ve learned from him.
Believe it or not, I agree with Dave Ramsey’s credit card advice, but only to a certain extent. I talked about it briefly in my credit card and debit card article, but I felt that I should write an entire article to go in-depth on the subject.
I’m aware that what Dave teaches has gotten people from broke to millionaire, and I’m not claiming in any way that what he says doesn’t work; because it definitely works. However, it is very clear that when it comes to finance, there is no ‘one size fits all’ advice that can be given to everyone. I believe this strongly applies to credit cards.
My intention with this article is to prove that credit cards aren’t as ‘evil’ as Dave makes them look. Dave claims that everyone should stay away from credit cards no matter what. His argument is completely valid, as provides real data and statistics to prove why he believes this.
Nonetheless, in this article, I will evaluate my point of view and prove that the only reason that Dave looks at credit cards in this manner is because of a majority bias. What do I mean with a majority bias? I simply mean that Dave is giving his advice on a macro-level, and only paying attention to the majority, rather than looking at things at a micro-level (which for a man with his level of fame, I don’t blame him).
Contrary to Dave Ramsey’s credit card advice, I believe credit cards can be very beneficial for those who use them responsibly.
My objective with this article is to prove that if you are a responsible credit card user, you can reap the benefits that the majority of people don’t.
Let’s get into it.
Who Is Dave Ramsey?
Since the majority of you probably already know who he is, you can go ahead and skip this section. But for those of you who happen to be on this article and don’t know who Dave Ramsey is, please read on…
Dave Ramsey is a personal money-management expert and author who has become a very popular national radio host. The name of the radio-show is The Dave Ramsey Show. He is best known for several of his best-selling books such as Dave Ramsey’s Complete Guide to Money, The Total Money Makeover, and several other best-selling titles.
Dave earned his Bachelor of Science in Finance and Real Estate from the University of Tennessee. He has become well-known for helping people become self-made millionaires. He does it on the basis of teaching people the principles of proper money management so that they can retire with complete financial freedom and with generosity to others.
One of his mottos is, “Live like no one else so you can later live and give like no one else.” I have personally heard him say this quote in multiple variations. I chose this specific variation because I wanted to emphasize the “giving” that is part of his motto.
He teaches people to manage their money correctly so that they can later be wealthy and give to others with the utmost generosity.
Dave Ramsey is a hero to many people and the values he teaches are helpful to anyone who learns them (including me). Beyond all this, however, he is only human and still holds a few biases; one of them is credit cards.
This is where several people disagree with him but Dave still does an excellent job to uphold the reasoning behind his bias. Regardless, there are still holes in this reasoning and I will be explaining them in this article.
First, let’s get into some statistics. Spoiler alert! They only prove his point further because they demonstrate that the majority of people are irresponsible with credit cards, but I feel that these statistics are still very important. They are something I should list because I agree with Dave when it comes to the majority of people. The majority should not have credit cards.
The United States is the country with the highest debt per person when compared to the top 10 GDP countries in the world, as of 2020.
Statistics show that the amount of credit cards per person has decreased over the past decade. The table below shows that the average amount of credit cards has reduced from 3.7 in 2009 to 2.7 in 2019.
Despite the evidence above, more credit cards are in circulation today. According to a recent survey by the Federal Reserve Bank, respondents revealed that more credit cards are in use today and the national average credit card debt is also rising. Keep in mind that the evidence below outlines the total amount of credit cards in circulation, not the number of credit cards per person.
Data also shows that having a higher income tends to correlate with higher credit card debt. Below, we have two separate charts, one from https://shiftprocessing.com/ and the other from https://www.valuepenguin.com/. Both coming to the same conclusion.
All this evidence seems to be pointing us in the direction of: “don’t get a credit card.” However, even though the evidence points to this, I continue to believe credit cards can be a good thing.
Why? Because I’m looking at the micro-level of things. According to a 2019 survey of approximately 2,200 U.S. adults that CNBC Make It performed in conjunction with Morning Consult, 55% of U.S. adults who have credit cards report also having debt. That’s 45% of Americans who are not reporting credit card debt and are being ignored by people who claim that all Americans should avoid credit cards.
In my point of view, based on the minority and its behavior, the data above simply proves the lack of personal finance education in our society. If we become more financially responsible, the number of credit cards won’t be what we’d see go down, it’d the amount of debt we owe on those credit cards.
This might sound extreme but hear me out. I’ll explain Dave’s philosophies and then I’ll explain why despite all of this, we can still come out ahead while using credit cards.
Dave Ramsey’s Philosophies on Credit Cards
Dave Ramsey’s credit card advice lies heavily on the statistics listed above; they point out what the majority of Americans do. He strongly advises against any use of credit cards regardless of how financially-responsible a person is.
Dave’s philosophies fall into the realm of “eventually, you will come to face needless credit card debt that you wouldn’t have had to face if you never used a credit card in the first place”. This because for the majority of America this is true. The majority of Americans are not responsible and cannot manage to use their credit card funds for uses that they would’ve had to make anyway.
Instead, most people view a credit card as extra money, or even worse, a type of emergency fund that they will pay off later. While not factoring in that by doing this, they will end up paying more on interest accumulating on the credit card.
Sidenote: Please don’t use a credit card for emergencies. This will make things worse for you and more than likely you won’t be able to pay it off before it starts accumulating interest. Start an emergency fund and have 3-6 months worth of expenses in it before you get yourself a credit card. Having an emergency fund is tied with financial responsibility.
Dave believes that even if you are a person who is very responsible with your finances, you will eventually fall prey to the game of credit card companies and end up paying more to them. He claims that you will not become a millionaire by getting $400 annual cashback on purchases.
Nor will you become a millionaire by redeeming your travel points in order to travel less expensively or free. He points out that 90% of credit card users never even redeem their travel points.
Dave also points out the fact that several Americans tend to spend more with credit cards because they chase the bonuses, cashback, and other rewards that the credit cards offer. They end up spending money that they would have not ended up spending had they not been chasing those rewards.
This is absolutely true.
Lately, the use of credit cards as a preferred payment method has decreased, despite that, debt continues to climb in America. Part of the reason for this is because several consumers are chasing rewards and spending more in order to attain them.
Also, even though credit card usage has been decreasing, it hasn’t gone away and it won’t be going away any time soon.
Stats show that compared to 10 years ago, 73% of American consumers are using cash less frequently. According to an industry survey from https://shiftprocessing.com/, only 10% of customers use cash on every purchase and 12% of people never use cash. This means that cash is being used less and less.
Dave makes several valid points as to why, in his view, all Americans should not have a credit card. However, he fails to acknowledge the smaller percentage of people who are responsible users. Though his stats are correct, he neglects the fact that there are still people in America who count into those smaller percentages of being responsible with money. People who are not spending more simply because they have a credit card or plastic in general.
There are some people who spend the same as they would with cash or a debit card but that number of people is very small.
My Philosophies on Credit Cards
I don’t believe that Dave is outright wrong, I simply believe that he’s not entirely right. He makes very good points and argues that credit card debt continues to climb. He makes all these arguments based on real statistics.
This is all true. Credit card debt continues to rise and Americans, overall, make very poor decisions when handling their credit cards and their money.
According to recent data (as listed above) from the Survey of Consumer Finances by the U.S. Federal Reserve the national average credit card debt per household sits at about $5,331 – $5,700. This equates to total revolving debt of about $1.03 trillion nationwide, according to ValuePenguin.com.
In my view and the view of many other financially-responsible people like Graham Stephen, good financial behavior and responsibility can be taught. Some people are not willing to learn but those that are can manage to handle a credit card correctly and actually make it very profitable for themselves.
Dave is absolutely right, you won’t become a millionaire by having a $400 annual cashback… but does it hurt you?
I’d rather have $400 extra bucks in my wallet than not having it at all. Dave makes his credit card arguments on a “one size fits all” basis while completely ignoring the small few that manage to not chase bonuses and not spend beyond their means with a credit card.
If you’re currently in credit card debt, stop using your credit card, pay it off, and learn to spend below your means. For this group of people, I agree, don’t get a credit card.
I was brought up with Dave’s philosophy as a teenager: “credit cards are bad, don’t ever use them, you don’t need a credit score.” But as I’ve learned more about our system, I’ve come to realize that credit cards and credit scores can be very beneficial for individuals when utilized correctly.
I’ve never been a fan of growing my materialistic ownership, like a new car, a new watch, expensive brand sunglasses, etc. I’ve always been the type of person that only buys what is necessary and lives below his means. This way, I am able to save for emergencies and have an abundance of cash to invest so that it can work for me and make me more money, rather than having it go into something that is only losing value every year.
This is how I’ve taught myself to spend even before I had a credit card, and now that I have one, my spending habits have not changed. I have not paid a single cent in interest or fees because I did my research on the perfect credit card to start out with (0 fees) and only use it in the same way that I would use cash.
I pay it off in full every single month and get rewarded for it with money that I wouldn’t have made if I didn’t use my credit card. I’ve made these rewards in cash on expenditures that I would’ve made anyway. As said before, my spending habits have not changed from when I would use a debit card. I spend the same, except now I get rewarded for it.
Credit cards also offer more security than debit cards and cash. I go into these benefits and more in my Difference of Credit Card to Debit Card article.
To give you all an example of when having a credit card was beneficial to me, instead of not having one, read on…
I recently bought a piece of furniture that wasn’t in stock but I bought it on credit so that the money isn’t withdrawn from my account until it’s in stock. Now, I’ll be one of the first in line to get access to the furniture once they get more in stock. Had I purchased this with a debit card or cash they would’ve taken my money right away and I would still have to wait for it to be in stock. If I find another piece of furniture that I like, it would be a bigger hassle to cancel that transaction and get my money back if I used a debit card or cash. While with a credit card, I could just cancel the purchase in 5 minutes or less and I never lose the money. This is just one example of the many benefits of credit cards but I felt like listing it because it just happened to me this week.
When you think about it, coming out ahead with credit cards is very simple. But resisting the urges and habits is very challenging for many people. Not everyone naturally wants to spend below their means, not everyone automatically thinks: “what if I save extra cash for an emergency, what if I save extra cash to earn more money on it”.
People don’t have tendencies to think this way and it’s due to societal norms and the failure of our education system to teach us about financial literacy. Responsible money-management isn’t mandatory to be taught in schools. Children and teens are never pushed to be financially educated so the majority of people fall prey to financial misfortunes such as credit card debt.
However, I’m confident that in the same way that Dave can teach people to stay away from credit cards, we can teach people to, use them responsibly and to their advantage. Believe me, I’ve seen people who save themselves a lot of money by using travel points to travel for free for trips they would’ve made anyway.
Dave may not think it’s a big deal but if you look at the long-term savings this can result in, you’d see why Dave is wrong by underestimating its value.
These are the same people who end up paying $0 in credit card fees or interest. All because they know how to use a credit card correctly and to their advantage.
When it comes to financial peace, there is no one size fits all. People have different circumstances and different behaviors. The same way that I think Dave Ramsey’s credit card advice should not apply to all people, I also believe that my advice does not apply to all people.
Responsible credit card use can be taught and learned but not everybody does very well at learning and practicing it.
Who is right?
It is an oversimplification to simply say that only Dave is right, or that only I am right. Dave’s information is solely based on statistics and should not be undermined and accused of simply being wrong; because it’s not.
But when he says it applies to everyone, that’s when he’s wrong.
I will never say that everyone should have a credit card because I personally know people who have one and should be staying away from it. I see them and the struggles they are either going through or will be going through. I agree with Dave when it comes to people like that.
However, as I said before, there is no “one size fits all” for finance. People have different circumstances and some people (a small portion of them) can manage their finances well enough to reap the benefits of credit cards.
How to Take Advantage of this Information
In this article, I am not talking to the people who are part of the majority. Their chances of getting into more debt and spending more with a credit card are very high, and I agree with Dave Ramsey for that group of people. One thing I can say for sure though, anyone can change their habits if they truly want to. You can learn how to manage your finances correctly, and once you do, it would be very beneficial for you to get yourself a credit card.
However, for those of you that are never talked about because you’re in the minority in terms of responsible money management. Those of you that handle your finances responsibly and only spend by using money that you know you have, and manage all your expenditures accordingly, I strongly recommend taking advantage of the benefits of credit cards. You will reap the rewards that credit cards bring and the rewards that are basically paid for by the irresponsible majority of credit card users.
I hope this article has been encouraging to those who have been let down by Dave’s thoughts on credit cards. You know you manage your money correctly, go out and get rewarded for it… just don’t get carried away by chasing rewards.
If anyone has any questions, feel more than welcome to leave them down below, I like to respond to every one of them!