Is Dave Ramsey Right that Credit Cards are Evil?

According to Dave Ramsey, and I quote, “Responsible use of a credit card does not exist.” He then goes on to add that there “is NO positive side to credit card use.” These quotes come from Dave’s website in an article entitled, The Truth About Credit Card Debt.

When I hear this extreme view, my mind immediately recalls saving thousands of dollars and getting out of debt faster with credit cards that offer balance transfers. I also remember all of the vacations we’ve taken for free or for substantially less than full price because of travel reward credit cards (Guatemala, London, Detroit (don’t ask)).

So I decided to dig deeper into Dave Ramsey’s view on credit cards. What I found shocked me. He certainly has a few reasonable arguments against the use of credit cards. But his extreme view that it is impossible to use credit cards responsibly is based on arguments that are, frankly, irrational and paranoid. So, let’s take a look at why Dave Ramsey thinks credit cards are evil.

You Spend More With Plastic Than Cash

Dave’s main beef about credit cards is his view that you will spend more money if you pay with credit cards than if you pay cash. That statement is of course a gross over-generalization for two reasons. First, while some people will spend more money using plastic than cash, not everybody does. In fact, one study by Carnegie Mellon University found that in some cases using a credit card actually reduced spending.

Second, there are certain types of spending that are insulated from overspending. For example, we use the Capital One® Venture® Rewards Credit Card to pay our cell phone bill each month. The cell phone bill is the same each and every month. Paying with cash or by check wouldn’t reduce the cost. The same is true for buying gas, paying for health care, and making certain charitable contributions.

Still, the notion that some folks will spend more with credit cards in certain circumstances than if they paid with cash is undoubtedly true. It’s just not true for everybody all the time. Dave’s claim to the contrary is simply wrong.

But then Dave goes on to harpoon credit card rebates, although his logic is twisted. He writes–

If you were using a credit card at 5%, you would have had to have spent $80,000 to get $4,000 rebates on new cars that lost $6,000 of value when you drove them off the lot. That is not a good deal!

Huh? First, the $6,000 in lost value would be true even if you paid with cash. Second, if his point is not to buy a new car, fine, but what’s that got to do with taking advantage of a 5% cash back rebate offer? This example is timely for me, as we are about to buy a Hyundai Sonata Hybrid, and I plan to use a rewards credit card if the dealer will let me.

(Note: If you are looking for a great 5% cash back rebate card, check out the Chase Freedom Visa–$150 Bonus Cash Back. Sorry, Dave, but a good deal is a good deal, wherever it may be found.)

Millionaires don’t get rich on credit card rewards

In one of his radio shows, Ramsey also said he had met thousands of millionaires, none of whom told him that they got rich off of credit card rewards. While his claim is undoubtedly true, it’s also pointless. In the legal world, we call that a straw man argument. Nobody that I know of has ever suggested that credit card rewards will make you rich. But why would you turn away free money?

Credit card companies will “misplace” your payment and charge you a late fee

This is where paranoia takes over for Dave and credit cards. In response to a caller’s question, Dave claims that eventually credit card companies will “lose” your payment, forget to post your payment on time, and then charge you a late penalty. Don’t believe me? Check out the clip below. Dave’s claim that credit card companies will intentionally “lose” your payment in order to charge a late fee is at about the 1 minute mark:

This is just plain silly. Here’s the deal. If avoiding credit cards is best for you and your family, by all means don’t use them. On the other hand, if you can control your credit card use, then by all means take advantage of cash back or travel rewards. We do, and most of our trip to the Grand Canyon this summer will be paid for in travel rewards from Capital One and American Express.

Topics: Credit Cards

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14 Responses to “Is Dave Ramsey Right that Credit Cards are Evil?”

  1. With the existence of debit cards, I wonder why people still use credit cards for anything except for things they can’t afford now. I can’t spend more than I have with a debit card. And if I can’t afford it now, I don’t buy it now.

  2. Rebekah

    Great article! I generally like Dave Ramsey’s advice, but I was listening to his show the other day, and his opinion on using credit cards, even if you pay the balance in full each month, really startled me! My husband and I have paid our credit card balance in full each month since we were married 15 years ago, never missing a payment and never being charged interest. Just for kicks this year, we have been funding our Christmas budget with credit card rewards, and as of mid-August we have over $600 saved up from reward points only. By December, I predict we’ll be able to spend $1000 on Christmas – money that was essentially free. Why would we turn that down? Also, his examples of what people are buying in order to reap those rewards always make it sound like superfluous spending. In reality, we buy everything we can in our budget (groceries, gas, school supplies, clothes, even charitable giving) on the credit card – so our spending is exactly the same regardless of cash, debit, or credit.

  3. Susan Greeley

    With debit cards offering rewards, why do I need a credit card? I find big brother offensive and the less I am on the tracability with card, the better I like it. I use cash as often as possible. I also can attest to the “baiting” of some companies. Chase gave me $125 to open a free checking accout that they only service now if there is $500 direct deposit or 5 debit card uses per month. I only opened it because my employer required direct deposit, and I
    thought I would. If I am being forced into something I get leary, so I can either conform or close the account. There is no way anyone can win the credit card game. If they weren’t making money, they wouldn’t be in business. You pay for what you get, one way or another.

  4. Fast Buck

    I’m not a Ramsey fan. He rubs a lot of people the wrong way with his bombastic personality. Anyone who has a different opinion than him is “an idiot” or “wrong”. Hey, I’m a grown up who can handle his money without listening to the forever self promoting blowhard.

  5. Funny how these “experts” have so little advice to offer the average person. Sure, in a perfect world there would be no credit cards – there would also be no world hunger, no crime, no violence. But we don’t live in a perfect world. If you can live by Ramsey’s preachings, good for you. If not, welcome to the real world for most people. Sadly, I learned the truth about these “experts” years ago when I followed the advice of Charles Givens – who was later convicted for falsely claiming he used his own advice, when in fact he did not. He just made his money selling his stuff.

    • KDB, I do think Dave Ramsey is genuinely trying to help those who lack the self-control to get out of debt. However, his views are a bit unrealistic. We are becoming more and more a card based society. You almost always HAVE to have a credit card to travel, purchase online, or even book a reservation. His view is extremist. I personally believe that if you set a budget, you are diligent, while keeping Christ at the center you will succeed. If you are living by the Spirit it says that “the fruit of the Spirit is love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness and self-control. Against such things there is no law. Those who belong to Christ Jesus have crucified the flesh with its passions and desires. Since we live by the Spirit, let us keep in step with the Spirit. ” (Galatians 5:22-25) Being financially savvy does not mean destroying all cards — sometimes it means capitalizing on what is available in a wise manner!

  6. While I don’t agree with everything that Ramsey says, your arguments in response are superficial because they ignore this reality: You are paying for your so-called “rewards” with higher prices forced on retailers and then consumers by credit card companies and their transaction fees. Economically, your credit card rewards are illusory. Credit card companies are indeed evil and have made us addicted to their views of the retail marketplace.

    • Mr. ToughMoneyLove, I’m going to disagree with you for two reasons. First, while it is true that the cost of credit cards are born by retailers, studies have shown that when you lower those costs, retailers do not pass on the savings to customers. They keep the extra profits for themselves. Second, even if lower interchange fees would help consumers, that’s not the reality now. As you point out, I’m “paying” for the rewards whether I use a rewards card or not. If I could pay less using cash (which you actually can at some gas stations), then you have a choice to make. But for 99.99% of the purchases we make, the cash and credit price are the same.

    • Mr. TML – there have been articles claiming that rewards are a transfer of wealth from poor, carrying debt month to month, to the rich who use their cards for convenience and pocket the miles/rewards/etc.
      That may be, but it’s my choice which side to be on. I’d rather have the cash in that 529 account than to claim I won’t do business with the devil.
      By the way, even without the cash reward, many cards offer a purchase protection. This is great for the big ticket items especially electronics. You drop your iPad the day you buy it, Apple doesn’t cover it, but my card does.

  7. Funny, Dave is right. You need to consider that you are not his target audience. Nor am I. If you take the portion of the population that simply has no self control, and separate them out, they are the ones who need Dave.
    No, millionaires didn’t get rich from rebates, most Millionaires Next Door got rich by spending less than they make, not “Acting Rich,” and certainly not by carrying wads of cash to lose, be robbed, etc.
    My 12 yr old’s 529 account was funded solely with the 2% cash back card from Fidelity. It just past $10,000 in value and by senior year in college should be near $30,000. This is a non-trivial sum of money.

    • Joe, you make a really good point. And congrats on funding the 529 with credit card rewards. That’s incredible. I do suspect Dave wouldn’t agree that his views are just for his target audience. I’ve listed to many of his shows, and his view of credit cards doesn’t change even for callers who clearly have control of their finances and pay off their credit cards in full each month.

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