Dave Ramsey is famous for telling everyone to cut up their credit cards. Is this really the best advice? Well, that depends.
I don’t envy Dave Ramsey. He has a rough job. When he speaks, millions of people are listening. Out of those millions, there are bound to be some that Dave’s advice doesn’t apply to perfectly. There are generally financial principles that apply to everyone, but the moment you go any deeper, the best financial decisions start to depend on individual circumstances.
Credit cards are a tool. They are not inherently good or bad. Credit cards can be a great way to build credit, get rewards, and earn cash back. In my business and personal life, we try to put as much of our expenses on a credit card to get the most from our 2%-3% cash back rewards as possible.
Another huge advantage of credit cards is the added protection. For example, if someone steals your credit card and charges $1,000,000 worth of purchases before you cancel your card, how much of that are you liable for? Federal law limits your liability to only $50 and some credit companies take that down to $0. Now, if someone steals your debit cards and does the same thing, there are more rules for how much you are responsible for, depending on how fast you report it. Not to mention, the thief could drain your checking account, leaving you without cash to meet your short term needs. Your stolen funds will be replaced, but this process can take weeks or months.
For these reasons, I love credit cards! I encourage my wife to only use a debit card when she absolutely has to.
All this being said, there is a reason that credit card companies make hundreds of billions of dollars every year. Not everyone pays off their cards before interest starts to accrue. This is where using credit cards can become dangerous. Credit cards give us the potential power to spend beyond our means. If unchecked, this can wreak havoc on our financial lives.
Telling everyone that credit cards are bad is definitely a financially safer story. I don’t blame Dave Ramsey at all for this position. I might say the same thing if I had to come up with blanket statements for millions of people.
Regardless of what anyone’s opinion might be, the most important question is what is right for you? We all have to answer this for ourselves because we are 100% responsible for our own financial lives. Just like anything in life, credit cards are merely a tool and it is up to us to decide if we are going to use that tool to bring us closer to our goals or further away.