There I was. 18 years old. And I didn't have a clue.
I didn't realize that some people were actually debt-free.
I thought a car payment was just another bill. I mean, everyone has a car payment, right?
I thought credit cards were a way of life. I never noticed adults using cash. Only cards.
Enter: Dave Ramsey and "The Total Money Makeover."
That book changed my life. More specifically, my finances.
All these years later, I still love Dave Ramsey, but now I love credit cards...again, but for a different reason...
Dave Ramsey on Credit Cards
"We want it all, and we can borrow to get it all, before we can afford it all." -Dave Ramsey
Dave was a millionaire before he went bankrupt in the early 90s. He had a very unhealthy use of credit cards, like most people.
It's no surprise that he now says: when you're trying to get out of debt, you should cut up your credit cards and stop using them. I agree that you stop using them, but I don't think you should cut them up. And let's be honest here...for most Americans, statistically, they shouldn't use credit cards.
But for the responsible people out there (like the people who are reading personal finance blogs and books to become a better financial steward), credit cards do have their benefits.
The Total Money Makeover
I find that "The Total Money Makeover" is a great starting place for someone who wants to learn about finances. It creates a great foundation. When I first read it, it was exactly what I needed to hear. Because I wasn't responsible enough to be using credit cards...yet.
As a sidenote, I realize that some people are never responsible enough to use credit cards. It's important to recognize and accept that or change it. But if you know you can't use them responsibly, listen to Dave and cut them up. All of them.
The basic steps of having an emergency fund, using the debt snowball, investing in a Betterment IRA and ultimately, paying off your mortgage are all great things. In fact, the only part of Dave's overall plan that I differ on is his view that nobody should use credit cards.
Why Dave is Right, But I Still Love Credit Cards
When Dave tells you to stop using credit cards, he may be right.
If you're trying to work your way out of debt, the worst thing you can do is to keep building more debt by using credit cards irresponsibly. However, I do believe that there comes a point where you can start using credit cards again...maybe. I say maybe, because some people should never use credit cards and you know who you are.
If you can't control yourself and you're getting out of debt for your third time, you should probably stay away from them. But once you're debt-free, you can start exploring the benefits of credit cards. Credit cards offer some amazing benefits. Who wouldn't want to save up to 6% (sometimes more) on every purchase they make? Cashback and travel rewards make a huge difference in your finances.
If you read "11 Ways to Make Money When You Spend Money", you know that there are even more ways to get cashback and earn when you spend. Credit cards are just one way.
Who Should Use Credit Cards
Before I go, I think it's important to reiterate the point (for the third time) that many people shouldn't use credit cards. Dave Ramsey's philosophy is directed towards the bulk of Americans, who don't have any business swiping fake money.
Simply put, if you use credit cards, do this:
- Budget to not spend more than you make
- Pay off the balance, in full, every month
- Have all your credit card debt paid off
- Have an emergency fund in place
It all comes down to responsibility.
If you're responsible enough to use credit cards, you can reap some great rewards. If you're irresonsible, avoid credit cards like the plague (or learn to control yourself). It's not worth putting yourself in piles of credit card debt, just to earn a few rewards.
What do you think about Dave Ramsey? Do you use credit cards?
Author Bio: Kalen Bruce is the founder and main writer at MoneyMiniBlog, where he writes short, sweet and simple articles about money and productivity. Kalen lives a debt-free life with his wife and four children. Get his free ebook here:Financial Freedom on a Full Schedule.