Are credit cards really that bad?
- Dave Ramsey firmly believes that credit cards are bad news.
- When used responsibly, credit cards can actually help you build credit and earn money on purchases.
“A life without credit cards is a life of freedom.” That’s what financial guru Dave Ramsey firmly believes. In fact, Ramsey had made it clear that he was really, really dislikes credit cards and thinks they are absolutely useless; he thinks they tend to hurt consumers financially. But is he right?
The downside of credit cards
Credit cards can make debt accumulation easier – the key word being “may”. If you keep swiping a credit card to make purchases without budgeting or keeping tabs on your spending, then yes, a credit card could land you in a very dark hole of debt. From there, you could end up racking up hundreds or even thousands of dollars in interest charges. And you could also end up damaging your credit score, making it very difficult to borrow money affordably when you need it.
But it is not guaranteed. One of the main reasons Dave Ramsey advises against using credit cards is that he’s probably seen a lot of people get into trouble overspending. But that doesn’t mean you go end up in this boat.
The right approach to credit cards
Although credit cards can get you in trouble, if you follow these basic rules, you can get a lot out of it.
- Never charge more than you can afford to pay by the time your bill is due. The only exception here is if an emergency expense arises and you really have no choice but to charge it to one of your credit cards and pay it back over time. In that case, just do your best to eliminate that balance as soon as you can.
- Set up a spending budget so you know how much you can afford to charge. This might help you avoid going overboard.
- Pay attention to your credit card billing cycle so you know when your payments are due. Being late with a credit card bill could cause significant damage to credit rating.
- Don’t just pay your minimum balance. It may seem like a convenient option, but it will only rack up expensive interest. Again, there’s an exception here if you’re only paying your minimum payments because you charged your credit card for a big emergency expense, like a house or car repair.
- Check your credit card balances frequently throughout the month. This could save you from charging too many expenses at once and getting stuck with a balance.
- Don’t pay annual credit card fees unless you have a very good reason. If paying that fee gets you access to more cash back or rewards, that’s one thing. But run the numbers before handing over those fees to your credit card company and make sure paying the annual fee is worth it to you.
A world of advantages
Credit cards can get you into debt and hurt your credit score. But when used responsibly, they can help you build a strong credit history and reward you with cash back for purchases you already make. And in some cases, they may offer protection in the event that an item you purchase is faulty or there is a problem with a service you paid for.
Dave Ramsey knows a lot about personal finance and his advice is often worth following. But when it comes to credit cards, he can take a bit of an extreme view — one that could miss out on a whole host of benefits.
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