Content provided by Bankrate.com. New York Post and its content partners earn compensation from the affiliate companies that appear below. This content does not include all available financial offers, and compensation may impact how and where links appear in the content.
When Dave Ramsey has an opinion about money, people tend to listen. This isn’t surprising: He’s a famous money expert and host of the popular radio program “The Ramsey Show.”
One of Ramsey’s more famous stances is against credit cards. He argues that credit cards are dangerous financial products that can easily lead you into debt. He often advises his followers to cut up their cards and only use cash.
Ramsey makes some fair points. Credit cards can enable overspending, and you may pay expensive interest charges if you carry a balance.
But his advice goes too far for many people. When used correctly, credit cards have significant benefits and can help build your credit. Let’s look at why you probably shouldn’t cut up your cards just yet.
What does Dave Ramsey say about credit cards?
Anyone who listens to “The Ramsey Show” knows that Dave Ramsey doesn’t like credit cards.
Why? He says that credit cards encourage overspending. Too many cardholders run up a balance that they can’t afford to pay, he says. That debt is then carried monthly, accumulating interest that makes it even harder to pay off.
Ramsey does make some good points here. Almost half of credit cardholders are carrying a balance from month to month, an increase from 39% in 2021, according to a recent Bankrate survey.
The debt can be devastatingly expensive. Credit cards charge notoriously high-interest rates, often above 20%. That’s higher than almost any other type of loan, including mortgages or auto loans. If you miss a payment, your card’s APR can increase due to penalty pricing.
It’s easy to end up in a debt trap. Spending on plastic doesn’t feel real in the same way as spending with cash, and studies have shown that consumers typically spend more when using credit cards compared to tangible currency.
This abstract feeling makes it easier to overspend. Ramsey argues that relying on cash makes you more disciplined and conscious of what you’re buying.
Plus, missing payments and carrying debt can tank your credit score. In Ramsey’s view, credit cards are dangerous products marketed to convince people they can afford more than they really can.
What Dave Ramsey gets wrong about credit cards
This doesn’t mean that you should never use credit cards. You should, though, use them responsibly.
That’s why Ramsey’s hardcore stance against cards goes too far, says Kelly Gilbert, fiduciary investment advisor at EFG Financial.
“He is black-and-white on an issue that isn’t black-and-white,” Gilbert says. “Any credit card can be evil. It can also be good. It depends on how you handle it.”
Here are some benefits of credit cards you shouldn’t overlook.
Convenience
You don’t have to worry about carrying large amounts of cash if you have a credit card. Credit cards are also accepted nearly everywhere, while some businesses don’t accept cash or have ATM access.
Credit cards also make shopping online, paying bills, and making travel reservations easier. Many hotels or rental car agencies will require a credit card deposit.
Rewards
Many cards offer cash back, points, or miles on your spending. Over time, that can add up to serious benefits.
You can use cash back to reduce your credit card balance. You can turn points into free hotel stays, flights, and car rentals. You can use your free miles to book flights to destinations across the globe.
Cash back credit cards can also help you buy products and services at a discount or directly lower your balance, Gilbert says.
“Dave Ramsey should like that you are cutting your expenses,” he says. “You’re buying things with your points instead of using money you don’t have. The building of points by using a credit card like a debit card should be something Dave promotes.”
Fraud protection
If your cash gets lost or stolen, you have little recourse to get it back. Debit cards offer some fraud protection, but still less than credit cards do.
It’s easy to cancel a credit card if you find it missing from your wallet. Plus, federal law protects cardholders if someone should make a fraudulent purchase with your card.
For example, if someone steals your card information and spends $5,000, you won’t have to cover those charges. You must report the fraud within 60 days of receiving the billing statement with the illegal purchases. Compare that to using cash. If someone steals your wallet and uses the money to go on a spending spree? That cash is gone forever.
Debit cards are also vulnerable to theft, and laws offer more limited protections against debit card fraud., You could be on the hook for the full amount.
Building your credit
Using credit responsibly shows lenders you can handle debt. That helps build your credit score over time, qualifying you for the best loan rates, as well as access to housing and some jobs.
A key way to boost your credit score is by making your credit card payments on time each month. These payments are reported to the national credit bureaus Experian, Equifax, and TransUnion. Make consistent on-time payments, and your credit score will gradually increase.
Other payment types, like debit cards and cash, don’t help you build credit.
While it’s possible to misuse a credit card and hurt your score, that shouldn’t be the main takeaway, says Daniel Milan, managing partner of Cornerstone Financial.
“The problem is that Dave is using too broad of a brush telling his millions of listeners that they don’t need credit cards,” Milan says. “That’s a disservice to have a stance that is so narrowly focused. If you use cards responsibly, they provide value. They are not a detriment.”
As long as you pay off your balance in full each month, your card offers many advantages that aren’t possible with cash or a debit card.
How to use your credit card responsibly
The smart way to use your credit card is only to charge what you can afford to pay off each billing cycle. This way, you won’t be hit with interest charges and late fees — and your credit score won’t take a hit.
“I understand where Dave is coming from,” Milan said. “It’s about being responsible. Don’t use your cards to buy something that you can’t afford. But the message shouldn’t be that no one should use this tool. It should be that it’s important to use this tool responsibly.”
Here are some best practices for using your card:
- Pay off your balance: Paying your bill on time and in full will help avoid penalties and interest charges.
- Set up a budget: Track what goes on your cards monthly and set a firm limit to prevent overspending. Many card issuers allow you to set up alerts that notify you when you’re nearing a limit.
- Keep your credit utilization low: Don’t open more cards than you keep; keep an eye on your total credit limits across all your accounts. It’s a good idea to get your credit utilization — or the percentage of available credit you’re using — below 30% — to show you can responsibly manage credit.
- Set up autopay: Ideally, set it to pay your statement balance each month, but pay at least the minimum monthly so you never miss payments, which can damage your credit and rack up fees
- Open new credit cards strategically: New card applications usually require a credit check that can cause a slight temporary decrease in your credit score. But a new card can also increase your total available credit, which has a positive impact on your credit score. Still, It’s important to space out your credit card applications and only apply to a card you can responsibly use.
- Try a secured card first: Those new to credit should start with secured cards, which require an upfront deposit that becomes your credit limit. This trains smart card usage while limiting overspending risk.
The bottom line
Ramsey isn’t wrong when he says credit cards come with financial risk. But while cards can lead to expensive debt, they also provide convenience, fraud protection, and even rewards when used wisely.
By sticking to a firm budget and paying off your balances in full, you can maximize these advantages while avoiding debt. Credit cards remain helpful financial tools for those with the discipline to spend carefully and pay on time every month.
So, should you cut up your cards like Ramsey demands? In most cases, no — as long as you stay committed to responsible usage focused on reaping rewards rather than racking up debt.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.
