Financial Guru Dave Ramsey has been on a most deserved rampage against debt for years. His programs have changed the lives of people all of the country. However, I do think that he is giving out some bad advice.
In a recent USA Today Article, he had this to say:
“There’s quietly been a debit card revolution,” says best-selling personal finance author Dave Ramsey, who urges fans of his radio and Fox Business TV show to cut up their credit cards. Now that debit cards are broadly accepted, he says, using a credit card “with all its fees and interest rates and traps with customer service is really stupid.”
In his blog he claimed that “there is no positive side to credit card use.” Besides the fact that my 8 and 5 year old boys would politely tell Mr. Ramsey that he shouldn’t say stupid and that it is a bad word, I think the advice is plain wrong. I understand his intent. He is making the broad base assumption that people are “stupid” and cannot handle personal responsibility when it comes to credit cards. Now, I wouldn’t go as far as insulting the people in debt who are buying his programs by calling them stupid and I sure wouldn’t make the broad based assumption that everyone cannot handle credit.
You see, Mr. Ramsey, there is a positive side to credit cards. Yes, there is a dark side. Of course, there is a dark side to using your preferred way of cash which is the debit card. The dark side is that we live in a finance/credit based society where it is important to have a strong credit score (which he disagrees with as well). Positive credit activity is essential to building and maintaining a good credit score. You use credit and pay it off. I don’t know about you but I don’t have the luxury to be on a cash basis for everything including a home mortgage.
Let’s go back to the “stupid” remark. Using a credit card “with all its fees and interest rates and traps with customer service is really stupid.” He prefers you to use a debit card. Banks make billions of dollars a year off of late fees with debit cards. I would argue that there are just as many and maybe even more traps that are produced by banks to lure people into using debt cards and incur late fees. That is somewhat one in the same.
I would agree with Mr. Ramsey that it comes down to personal responsibility. We have to get out of debt as a nation. If you cannot handle a credit card, then you need to cut them up and never go there again. For the rest of us “stupid” people, using a credit card in a positive manner makes sense.
Tags: Bob Brooks, cash, credit cards, Dave Ramsey, debit cards, financial responsibility
February 9th, 2010 at 12:19 pm
Not to mention the favorable insurance rates if you have a higher credit score. It’s a downer to be controlled by a “rating”, but until something changes the system, it’s wise to be a good steward by taking advantage of a good score.
February 9th, 2010 at 5:11 pm
Glad to hear you weigh in on this. I taught a FP class at our church several years back but had to keep mum about the credit card stuff. You see, we do use credit cards for most of our consumables (zero balance) and then get to reap the reward of getting a free airline ticket every 18 months or so! I agree with Cash regarding the credit score stuff as well. Until it is changed, we have to play by those rules. But as a side note regarding credit scores, my sweet hubby and I tried to get financing for a rent house a year ago. We have an awesome credit rating and oodles of money in investments (thanks Bob Brooks!) but they said we weren’t even close to qualifying because our monthly income wasn’t enough. And this was for a rent house whose rental income would more than cover the mortgage!!! Just plain dumb…. We are undesirables because we don’t make enough and own rent houses as our income.
February 19th, 2010 at 9:09 pm
I wonder if a consumer realizes how much merchants pay when accepting credit cards. This obviously gets “built into” the prices for goods and services. I’m a big advocate of cash for “small” purchases. When I owned an ISP business, it cost me $1.28 to “crunch” a client’s credit card for a $24.95 monthly fee. For a small business the rate is around 75 cents minimum, so if you use a card for a $1 purchase, there is no way a merchant can make money.
February 21st, 2010 at 9:35 pm
Tom – good info
February 23rd, 2010 at 11:43 pm
Just think what it would be like if all of us paid our debt off, stopped using credit cards, only used credit for the largest purchases. Better than it is now. More cash to save, spend and give. Wallah! economy fixed. Nevertheless, i can only take so much of Ramsey’s ego. Have a nice day.
February 25th, 2010 at 8:29 pm
Scott – as you point – so much of the time the solutions aren’t rocket science!