Dave Ramsey tells everyone to cut up their credit cards and swear them off for life. I don’t. Why such a stark difference? Are credit card rewards worth it? Or maybe there are other reason? This post is all about why I still have my credit cards, and why you may want to keep yours too!
Why Dave Ramsey Tells You To Cut Up Your Credit Cards
There are plenty of people that say Dave Ramsey is an idiot and you shouldn’t listen to anything he says. I’m not one of those people (In fact, last I checked, Dave Ramsey is worth over $200 million. Idiots don’t become centimillionaires.)
One of the reasons for the outlash again Dave Ramsey? The big one is because he tells you to cut up your credit cards and forget about the rewards.
What? And lose out on the 1-2% cash back? He must be nuts!
- Having access to easy debt makes you spend more
- Credit card interest is often 18%+, which is ludicrous. It’s not a game you want to play.
- No wealthy person has ever said, “The reason I’m rich is because of credit card points.”
- Dave went bankrupt by borrowing money. He got rich by not borrowing a cent.
All the logic plays out. Credit cards aren’t going to make you rich.
That said, I still own two credit cards.
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Why I Still Own Two Credit Cards
If I agree and respect Dave Ramsey, shouldn’t I have said “see ya” to Capital One and Citibank a long time ago? Shouldn’t I have given my credit cards “plastic surgery” (ie. cut them up) years ago when I committed to getting out of consumer debt?
In theory yes… but I just couldn’t do it…for three main reasons.
1) A Credit Score is Important…no matter what Dave says
Will I ever borrow money again?
So I shouldn’t need a great credit score then, right? It’s inconsequential, right?
- If you want to rent a car, you typically need a credit card and a credit score
- For car insurance, you’ll get better rates if you have a good credit score
- When you sign up for cell phone service and you don’t have a credit score, you’ll be required to put down a deposit.
- A credit score is often used to evaluate your character (for instances like renting an apartment or applying for a new job). Without a credit score, there’s no measure of character and you might get passed up for someone that actually has a credit score.
Basically, it’s just an extreme nuisance to NOT have a credit score because our society puts such a strong emphasis on it. Like it or not, a credit score is important, and it probably will be for many years to come. In my opinion, it’s best just not to fight it.
2) Credit Card Theft Protection
When I go out to a restaurant and it’s time to pay the bill, I reach for my credit card and NOT a debit card.
If I fork over a debit card, I’m sending bank account money into the back, entrusted in the hands of a broke 17 year old server. If they steal my debit card numbers and go on a spending spree later that night, my bank account balance goes down immediately and I need to fight with my bank to get that money back.
Instead, if I send them back with my credit card and they go on a spending spree with my 16-digits, I simply tell the credit card company that I’m not paying for their bill. Then it’s on them, not me. Soooo much simpler!
I use the same theory at the gas pump and for online purchases. I’d much rather have someone steal from my future payment than from my bank account balance.
3) Credit Card Rewards
And finally, credit card rewards!
Like I said before, I have a Capital One credit card and a Citibank credit card. I’ve had them both for 8+ years, and they earn me 1-2% on my purchases.
My wife and I are both savers. We don’t spend money because we get the urge to. We often spend money because we have to.
We spend money on…
- kid’s stuff
- annnd the occasional random expensive thing
When we spend on these everyday things, we use our credit card.
Then, every 3-6 months, I cash in a $100 gift card to use on essentials like gas and food.
On average, I’ll earn $300 or more dollars per year because of credit card rewards. I’m not overspending. I’m just spending! And, I’m earning a few bucks in the process.
Honestly, it’s great, and I don’t intend to stop using credit cards any time soon.
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So the big question here…are credit card rewards worth it? Is it worth having a credit card for the rewards points?
The answer to these questions depends largely on you and your spending habits…
Do you spend more because you have credit?
Be honest with yourself here.
Do you ever spend money just because you have room under your credit limit? And you don’t really have cash for your purchase?
If you have credit card debt today, then that means you’re spending more than you earn…which means the credit card company is winning and you are not.
It’s time to cut up your credit cards.
If you only spend money because you have to or because you’ve got more than enough money in the bank, then you’re fine here. A credit card isn’t an issue for you.
Do you have a hard time saving up an emergency fund?
Do you currently have an emergency fund? If not, this means you’re not saving beyond what you’re earning and you’re depending on your credit card to bail you out in an emergency.
This isn’t smart, and it’s a sure-fire way to put yourself into debt for the long term (FYI – most people get into serious credit debt because of unforeseen medical bills…and they have no emergency fund). Don’t get caught here.
If you can’t save up an emergency fund, then that credit card is a problem for you and you should cut it up.
You know those credit cards that pay you better rewards for spending money at restaurants or hotels? Is that causing you to eat out more or go on vacation more? If so, then you’re CERTAINLY losing the credit card game!
Here’s how I know.
What if you ate the same meal at home? $4.
You just overpaid for your meal by $16…and you got 2% in credit card rewards…which earned you $0.40.
Overspend by $16…earn $0.40…Like I said, you’re certainly losing the game… Cut up your card.
If you could care less about what cards pay you what points, then you’re just fine holding onto that credit card. In other words, if you don’t care about the rewards, then you’re fit to earn them.
Credit Card Rewards – Are You a Fan or Not?
Credit card rewards are pretty awesome when you get them and you really haven’t overspent for them. An extra $300-$400 a year isn’t going to change your life, but it’s a cool perk.
But now I want to hear from you!
Are you a fan of credit card rewards? Or are you a Dave Ramsey die-hard that cut up your credit card years ago? Tell me in the comments below!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.