Are credit cards really that bad?
- Dave Ramsey firmly believes that credit cards are bad news.
- When used responsibly, credit cards can help you build credit and earn cash back on purchases.
“A life without credit cards is a life of freedom.” That’s what financial guru Dave Ramsey firmly believes. In fact, Ramsey had made it clear that he really doesn’t like credit cards and he thinks they are absolutely unnecessary; he thinks they tend to hurt consumers financially. But is he right?
The downside of credit cards
Credit cards can make it easier to rack up debt — the operative word is “can.” If you keep swiping a credit card to make purchases without setting a budget or tracking your spending, then yes, a credit card could land you in a very dark hole of debt. From there, you could end up racking up hundreds or even thousands of dollars in interest charges. And it could also end up hurting your credit score, making it very difficult to affordably borrow money when you need it.
But that is not guaranteed to happen. A major reason Dave Ramsey advises against using credit cards is that he’s probably seen a lot of people get into trouble by spending too much. But that doesn’t mean you’ll end up on that ship.
The right approach to credit cards
While credit cards can get you into trouble, if you follow these basic rules, you can actually get a lot out of them.
- Never charge more than you can afford before your bill is due. The only exception here is if an emergency expense comes up and you really have no choice but to charge it to one of your credit cards and pay it off over time. In that case, just do your best to remove that balance as soon as you can.
- Set a spending budget so you know how much you can afford. That could help you avoid going overboard.
- Pay attention to your credit card billing cycle so you know when your payments are due. Being late on a credit card bill could result in significant credit score damage.
- Don’t just pay your minimum balance. It may seem like a convenient option, but it will only rack up expensive interest. Again, there’s an exception here if you’re only paying your minimum payments because you charged a large emergency expense to your credit card, like a home or car repair.
- Check your credit card balances often throughout the month. Doing so could prevent you from charging too many expenses at once and getting stuck carrying a balance.
- Don’t pay an annual credit card fee unless there’s a very good reason to do so. If paying that fee gets you access to more cash back or rewards, that’s one thing. But do the numbers before you hand that fee over to your credit card company and make sure paying the annual fee is worth it to you.
A world of benefits
Credit cards can put you in debt and hurt your credit score. But when used responsibly, they can help you build a strong credit history and reward you with cash back on purchases you’re already making. And in some cases, they can offer protection in case an item you buy is defective or there’s a problem with a service you paid for.
Dave Ramsey knows a lot about personal finance, and his advice is often worth heeding. But when it comes to credit cards, you can take a bit of an extreme view, one that could cause you to miss out on a whole host of benefits.
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