Dave Ramsey is a well-known financial expert with millions of readers and listeners. Ramsey has provided advice on many different issues, but he is perhaps best known for his anti-debt stance.
Ramsey is a firm believer that it is possible to live largely without borrowing, and he recommends avoiding credit cards. Unfortunately, his advice on using credit cards could actually have a negative effect on your finances, and most people should choose to take a different approach.
So why shouldn’t you listen to Ramsey about 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 advantages of credit card is that they can help you get a good credit rating. As you use your cards, you develop a positive payment history – which is the most important factor in the credit score formula. Hold a credit card for a long time and keep the balance below 30% of the credit at your disposal can also help boost your score.
Ramsey suggests it’s okay to forego these credit-building benefits because there are other ways to “prove you’re responsible with money.” He gives examples including paying your cell phone bill, utility bill, and other “regular bills” on time and claims that “the right creditor will take this into account.”
In reality, however, utility and cell phone payments are generally not reported to the three major credit bureaus and therefore your payment history for these bills does not help you establish a positive credit history or get a 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 are going to focus on your credit score. You’ll unnecessarily narrow your borrowing options — and potentially make getting a loan like a mortgage a whole lot more expensive if you heed Ramsey’s advice.
2. Ramsey says credit card points aren’t worth it because of the fees
Credit card rewards are another major benefit of using credit cards, as you can get cash back, free or discounted merchandise or travel just by using your card for everyday expenses. These rewards can be very valuable, often totaling 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 interest charges can be avoided entirely if you simply use your cards responsibly. And many cards don’t charge any membership fees, those that do usually offer many other valuable perks such as airline lounge access or free checked baggage.
If you’re sure you can pay off your cards before your creditors start charging interest, there’s absolutely no reason to give up earning rewards for your purchases.
3. Ramsey also says credit card rewards aren’t worth it because they expire
Finally, Ramsey suggests that it’s not worth earning credit card rewards because they expire. This is an odd claim because with most cards your rewards will not expire as long as the account remains open. And even though there is an expiration date, you can still get rewards just by redeeming them before they expire.
For these three reasons, you should disregard Ramsey’s advice on how to avoid credit cards. Instead, you should use the cards responsibly, choosing a card that offers valuable rewards, paying off the card in full each month, and making sure to avoid overcharging the card in order to get a good rating. credit.
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