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 a 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:

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.

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 American Express.