Why Dave Ramsey is Wrong About Credit Cards

There are a lot of people out there that don’t like credit cards. I don’t know if “scared” is the right word, but it seems to fit. They’re scared that all the perks you may get by signing up for a credit card is too good to be true. They’re scared that they may start to use a credit card for what banks hope you use it for: living today on tomorrow’s (possible) income. Indeed, if you use credit cards like that, you’ll be up a creek… and it won’t smell anything like flowers.


Why the hostility towards credit cards?

The credit card industry hasn’t always been like it is today.

In 1981, American Airlines was the first to introduce a rewards program that we would recognize today. The travel credit card industry really started to take off in the early-to-mid 2000s and is still growing today. Meaning, the parents of those who grew up between the 1950s-1970s really just used cash or checks. If a family did have a credit card back in the day, it was used as more of a stop-gap measure to cover an unexpected expense should one arise. Otherwise, they weren’t used.

With that being the case for decades, it’s easy to see how credit cards are still looked at by many as a kind of “evil.”


Dave's view when it comes to credit cards

I’ll be the first to tell you, when it comes to finances, Dave Ramsey knows his shtuff. And believe it or not, I follow a lot of what he teaches. For example, I have an emergency account that will soon be worth about six months of expenses. I use a zero sum budget (something I would recommend to everyone). But he’s 100% wrong about his view on credit cards. Here’s his view in one sentence: ​​

“There’s no such thing as credit card rewards. Credit cards enable people to go into debt faster than ever before.”

​There’s no denying, that for millions of people, that’s true. Americans have racked up a total of over $1 trillion in credit card debt. Having said that, that’s not true for everyone who has a credit card.

There are such things as credit card rewards.

I’ve experienced them first hand (and have shared many of those experiences with you on the pages of this blog). Ramsey is drastically oversimplifying the whole situation. He seems to think that if you have a credit card, you’ll end up going into debt (i.e. carry a balance, month to month), guaranteed. First of all, that is not a proveable statistic. Secondly, no matter how high our country’s credit card debt is, it doesn’t prove that everyone with a credit card carries a balance.

Another claim he likes to make is that, “no one ever got rich off a rewards program.”

​I’ve never claimed that, and I don’t know anyone else who has. On the contrary, those who partake in “travel hacking” do it to save a buck or two. (And I know this probably isn’t what he meant, but Brian Kelly, the founder of The Points Guy, did get rich off of rewards programs… so there’s that.)

​He also thinks that you have to “use the card a lot to earn the perks.”

That is completely absurd. I have two credit cards that I put almost zero spending on and I still get the biggest perks the cards have to offer. As an example, I get an annual free night (even if I put $0 in spending on it) that can be worth several hundred dollars just for having my Chase Hyatt Credit Card. Yes, it comes with a fee of $75 a year, but an annual free night is well worth the fee.

This year, I’m using my free night at the Hyatt Regency Hill Country just outside of San Antonio, which typically has rooms going for $150-plus a night.

Finally, Ramsey says this:

“Sometimes we don’t realize how easily credit cards can harm our finances and hearts until we step back and really look at the root of our addiction. When we understand how dangerous they are—and the lies we’ve been told about them—we can break up with these pesky pieces of plastic more easily.”

Yeah, he’s really laying it on thick. Credit cards aren’t the problem. Being irresponsible with money is the problem. If you learn to control your urges to spend more than you have, you’ll be just fine. ​

I think I understand why he’s got a hardline stance against credit cards. In my opinion, you have to look at who his audience is. It’s made up of people who need to be told, without question, that credit cards are bad. I suspect if you talk to him privately (or off the record), he may not hold such a black-and-white stance on the issue. Publicly, however, there’s no room for debate. ​

For many, travel credit cards still aren’t the answer

Though there are many misconceptions about credit cards, the assumption that they aren’t for everyone remains accurate. They aren’t. Period.

The average credit card debt per household is over $6,000. Yeah, not good. And like I mentioned earlier, the total credit card debt in the country just recently surpassed $1 trillion about as quickly as I pass by a gym. Those kinds of stats tell me that, a) the country, as a whole, needs a lesson in living within its means and b) credit card companies are making a lot of money on those who carry a credit card balance every month with an APR of 18%-30%.

American Express, for example, made $607 million more in revenue during Q2 of 2018 than they did during the same period in 2017. That’s after accounting for the fact that the company spent over $9 billion over the last 12 months on credit card rewards. Let that sink in.

Overall, credit card companies are doing just fine. That’s why they are able to offer such lucrative travel rewards.

Having said that, if you’re contributing to the $6,000 in average credit card debt, don’t even think about trying to take advantage of travel hacking with credit cards. It’s not for you. Pay off your credit card debt first. Only after that’s taken care of and only after you have established a budget that you can stick to should you consider getting into travel hacking.


​Used appropriately, credit cards can be extremely beneficial

Credit cards can give you a lot of benefits regular old cash doesn’t provide. Let’s say, for example, you live in New York and typically do three to four round trip flights every year to Dallas because your parents live there. You could use cash.

Or you could get a card like the Southwest Rapid Rewards Plus credit card. If you put $1,000 in spend over the first three months of having it you’ll be rewarded with 40,000 Rapid Rewards points. That’ll get you to three round trip tickets to and from Dallas. It’ll get you seven one way tickets. A savings of about $700. A year of traveling home and back... for free.

Beyond the sign up bonuses and the points or miles you earn that make it possible to travel for pennies on the dollar, many also offer purchase protection up to a certain amount. My American Express Platinum, for example, has purchase protection up to $10,000. Most travel cards come with car rental insurance as well. If you’re interested in a more in depth look at some of the other perks certain credit cards come with, you can read about them here.


Bottom line

I’ve been travel hacking for the past five years. I’ve yet to go into debt with any of the credit cards I’ve added to my portfolio. If I had, I’d stop travel hacking.

Of course there are a bevy of reasons why someone may not want to get into travel hacking. If you’re in debt, don’t do it. If you don’t travel, don’t bother. If your credit score is really low, don’t bother travel hacking until you get it up.

But just because you were taught growing up that credit cards are evil, doesn’t make it so. Used properly, credit cards can be pretty darn neat to have.  

Listen, I have the utmost respect for Dave Ramsey.  If you are in massive debt and are looking to get out of it, heed his advice. He’s worth millions, has millions of fans, and knows what he’s talking about - except for when it comes to credit cards.

But once out of debt, there’s nothing wrong with opening a credit card or two. Just know your limits. Stick to a budget. And don’t spend more than you can.  

If you’re in the market for a new credit card, or you just want to learn more about travel hacking, my book, Cracking the Code to Travel Hacking, is a perfect place to start. It’s jam-packed with useful information that’ll help you jet off somewhere for pennies on the dollar - in no time!


You may also like:
-How to Take Advantage of Travel Rewards When Planning a Wedding
-Are Airport Lounges Worth the Price of Admission?
-Breaking Down Credit Card Rewards and how YOU can Take Advantage