Over the course of 10 years, Dave Ramsey, a well-known financial advisor and the author of the baby steps method to eliminate debt, has told us many times why he hates credit cards. Today, he uses his expertise to help others fight their financial battles. Let’s see what Dave Ramsay thinks about credit cards and whether it is a good idea to use them or not.
What Dave Ramsey’s view on credit cards?
According to Dave Ramsey, studies show that people who use credit cards spend a lot more money than those who pay cash. It is a known fact that the money on our account is virtual in our minds, and we don’t have a feeling that we are actually spending when using a card. With that in mind, it is pretty clear why some people go on a shopping spree like they have a no-limit card.
However, many people discuss whether Dave Ramsay wrong or not. Even though his statement about credit cards has a lot of logic, there is a general flaw in it. Not everyone has the same approach when it comes to using credit cards. Some people are much more educated about money, and they can manage their finances without spending substantial amounts.
Dave Ramsay’s opinion on paying off a credit card debt
It is a fact that credit cards bring a lot to the table. Consumers can purchase expensive items without actually having the full amount of money. Furthermore, many banks reward their clients with special points when using a credit card. However, paying a credit card debt can put consumers in many problems. Ramsay states that, in today’s world, the entire population holds money in bank accounts. With the increased use of credit cards, not everyone pays off their debt when it’s due. The interest piles up over time, taking a big chunk out of the users’ accounts.
Nevertheless, it is crucial to mention that approximately 60% of credit card accounts in the United States are either paid off on time or completely dormant. The other 40% of consumers are not paying their debts on time, resulting in calculating the interest.
With that in mind, a significant part of the population takes care of their finances properly.
Are there any alternatives to credit cards?
As we have established right now, peoples’ spending habits and financial management skills determine how well they handle a credit card debt. Nonetheless, it is essential to understand the alternatives to credit cards. We all split our budget percentage into different categories; thus, it is imperative to learn when we can spend our hard-earned money, and when an alternative is a better choice.
Debit card
Using a debit card instead of a credit card is the best option. You will have to tweak your spending habits a little, though, but it is an excellent way to control how much you spend every month. It is very simple; you cannot spend more than you have.
Overdraft
Another way to borrow money from the bank is to apply for an overdraft. This is a great idea for people who need a bit more cash for a short period. An overdraft can be approved both with and without interest. If it is not an interest-free overdraft, make sure to check the percentage of interest and if the option will be right for you or not.
Short-term loan
This option is worth considering if you have a more considerable expense during the upcoming month. Fixes around the house or car repairs are the usual reasons people get a short-term loan. Taking one loan is perfectly fine, but some people take multiple short-term loans within just a few months. Never do such a thing, as you might end up in debts you will not be able to cover.
Personal loan
A personal loan is a type of unsecured loan. It can come with a fixed or variable rate, and the amount of money you can get depends on various circumstances. This type of loan is useful for people who are looking for employment away from home. Having a budget on the side will cover you for a few months.
Secured loan
If you need to borrow even more money than you could with a personal loan, a secured loan is the option for you. The amount of money you need to borrow is secured by the bank against assets you own, like a car or a house.
Peer to peer lending
One of the more popular ways to borrow money is growing in popularity. Peer to peer lending is a service that resembles a personal loan. However, you don’t borrow money from the bank. Instead, you are matched with lenders through an online service. You also need to apply for it and get assessed. Furthermore, have in mind that not paying the monthly rate on time will bring additional expenses and interest rates.
Should you use credit cards or not?
We covered everything Dave Ramsey thinks about credit cards. As mentioned earlier, credit cards can be a huge liability if you don’t know how and when to use them. While there are immense benefits, no one ever got richer by paying with credit cards and earning reward points. Nevertheless, as with any other form of money, it is crucial that people get educated about the proper use of credit cards and their entire financial budget. The responsibility of spending wisely and smart lies in our hands. A credit card is a double-edged sword, so if you decide to use it, be sure you are careful regarding your spending habits!