Credit Cards

Why Dave Ramsey’s Advice About Annual Credit Card Fees Is Wrong

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You don’t necessarily have to listen to the financial expert on this topic.

Key points

  • Dave Ramsey is a financial expert with millions of readers and listeners.
  • Ramsey has warned that credit card fees are not worth paying.
  • Ramsey refuses to consider the benefits of the cardholder in making this statement.

Personal finance expert Dave Ramsey is not a fan of credit cards. In fact, Ramsey is well known for advising his readers and listeners to stay away from virtually all debt and suggesting that people pay cash for purchases or use debit cards instead.

Ramsey has every reason to suggest his readers avoid using cards. And the annual installments are one of his justifications for saying no to credit. In fact, the Ramsey Solutions blog explains that annual fees are “another way credit card companies make money” and warns that these fees are one of several card pitfalls.

But is Ramsey right on this point?

Here’s why Ramsey doesn’t like cards with annual fees

The Ramsey Solutions blog paints a dire picture of why the annual fees aren’t worth paying. According to the blog, many card companies hide the details of what annual fees will cost, causing people to misunderstand the price of becoming a cardholder. Ramsey’s blog also suggests that the annual fees generally outweigh any rewards you can earn with your card.

“Let’s say your card offers airline miles and has an annual fee of $80,” the blog says. “If you spend $8,000 on the card each year and pay for it each month, you will have accumulated enough miles to get a free ticket in three years. Three years! And by that time, you will have spent $240 on fares alone. your own flight with that money!

This example, in fact, paints a picture of a situation where the annual fees are definitely not worth it. But it doesn’t tell the whole story.

The problem with Ramsey’s advice

The big problem with Ramsey’s rationale for describing annual fees as a waste of money is that the explanation given doesn’t take into account other benefits cards can provide.

Most credit cards that have annual fees come with substantial benefits for the cardholder. For example, it is common for cards with annual fees to offer:

  • Statement credits for certain types of expenses, like cash back for in-flight purchases or previous TSA checks
  • Airline lounge access
  • Free companion plane tickets
  • free checked baggage
  • Travel insurance
  • rental car insurance
  • purchase protection

Now, not all cards with an annual fee will offer all of these benefits. But virtually every card that charges fees offers at least some of them; otherwise no one would sign up and the card issuer would eventually stop offering the card.

And these benefits can be of substantial value, which can more than cover the fee, even without taking rewards into account. For example, if you have a card with a $100 fee but it allows you to avoid a $30 checked bag fee, all you need to do is fly with four bags to offset the fee.

Ultimately, you shouldn’t be afraid to sign up for a card that charges you for membership, as long as you’ve looked at the benefits and done the math to make sure it’s worth the annual cost. If you find this to be the case, you should ignore Ramsey’s advice and get the card as long as you’re sure you’ll be able to spend responsibly and pay off your card in full when your statement is due.

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