Ramsey insists that rewards cards aren’t that rewarding.
- Ramsey says that credit cards encourage excessive spending.
- It also says that “billions” of rewards are not used.
- Despite your arguments, if you budget for your purchases and have a plan for your rewards, you can get a lot of value from rewards credit cards.
So I love rewards credit cards. I use them for almost everything. If I can load it, I make sure to put it on the correct card to maximize my rewards. But not all financial experts share my love of rewards.
Dave Ramsey is perhaps the most notorious anti-card activist for his hard-line stance against credit cards of any kind, including reward cards. And as much as he hates to say it, his plot has some good points. However, in my opinion, a good budget and plan can get around most of his objections to rewards cards.
Point: Credit cards can make it easier to overspend
Ramsey has some arguments against credit cards. The first, and most obvious, is that credit card users can accumulate debt, debt that carries expensive interest rates. But even if he pays in full each month, Ramsey says he should avoid credit cards, including rewards cards.
Why? On his show, Ramsey argues that people who use cash tend to spend less than people who use plastic. And this effect means that people who use rewards cards don’t really win.
“While you feel like you’re making money on this,” he says, “at the end of the week, when it all adds up, you’re losing.”
Unfortunately, you’re not necessarily wrong here. Studies have shown that people who use cash tend to spend less overall; they also value their purchases more. This is attributed to what is commonly known as “the pain of paying.”
Essentially, studies have shown that the brain has a pain response to spending money. In other words, the brain’s pain centers light up when we consider the cost of something, reducing the potential pleasure we get from purchasing it. Similar studies suggest that this feeling is heightened when we use cash, rather than credit cards, because you are physically losing something (the cash) in the transaction.
Ramsey sums it up with this example: “Visualize a $100 bill in your hand, and then it’s gone from your hand. When you hand over [the teller] the $100 bill, they don’t return it. When you give them your plastic, they give it back to you. You didn’t lose anything. See how that feels, psychologically.”
Point: Unused credit card rewards are worthless
Another part of Ramsey’s argument against rewards credit cards is that many people let their rewards go unused. Depending on the rewards program, this could cause your rewards to expire and all of that potential value to disappear into thin air.
In one show, Ramsey goes so far as to claim that there are “22 trillion unclaimed airline miles” in people’s accounts, which are being wasted. Unfortunately, he doesn’t offer a source for this astronomical number (and we couldn’t verify it ourselves).
Do people miss out on credit card rewards because they don’t use them? Of course. Do all, or even most, cardholders let their rewards wither on the metaphorical vine? Hardly.
The Solution: Have a Budget and a Plan
At the end of the day, Ramsey certainly makes some interesting points. But he also makes some startling generalizations about cardholders that don’t apply to everyone, or even most of us.
Yes, credit cards can definitely minimize the friction of shopping and ease the physiological “pain of shopping.” When you’re not seeing your cash supply dwindle with every purchase, it’s certainly easier to spend more money.
But this phenomenon is easily defeated with a simple trick: budgeting. As long as you know how much money you have to spend and stay within those limits, you can easily avoid the pitfalls of getting yourself into a hole.
Similarly, staying on top of your credit card rewards is easy as long as you have a plan. Many people who accumulate points and miles, for example, do so with specific trips in mind. Every time I open a new travel rewards card, I know exactly where those points are going, or more specifically, where they’re going to take me.
If you find yourself with points and miles you can’t use, there’s another simple trick: cash back rewards. Users who keep cash back can convert their rewards into statement credits, paying for purchases and benefitting their budget without worrying about anything expiring.
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