Dave Ramsey is anti credit card, and he does not believe that you should use cards even to earn rewards. In fact, Ramsey says card points aren't worth earning.
There are a few key reasons why Ramsey thinks points aren't worth it, but the reality is that he's wrong about many of those reasons. Here's why.
Here's why Ramsey thinks card rewards aren't worth it
Ramsey believes credit card rewards are not worth earning because:
- You'll spend more on your credit cards in order to earn rewards
- You'll pay more in credit card interest than the value of your rewards
- You have to spend too much to be able to actually redeem your rewards
- Your points may expire
- You'll get hit with annual fees
- You'll pay a high interest rate once any introductory rates expire
Ramsey is very clear that he believes the downsides of using a card outweigh the upside. And, as he points out, "No one ever got rich off credit card points."
Ramsey is wrong for a whole host of reasons
Although Ramsey has a whole lot of reasons why he thinks you shouldn't use a rewards card, he's not right about most of them.
There are plenty of credit card rewards programs out there that have rewards that never expire. And, with many cards -- especially cash back cards -- there's either no limit or very low limits on how big your rewards balance needs to be before you can redeem. There are also dozens of cards with no annual fees, and it's entirely possible to avoid interest charges entirely simply by paying off your balance in full. You can set up automated payments to do that.
As for the claim that no one ever got rich off credit card points -- that's not entirely true either. I have been using a cash back credit card for many years. I have it set up to deposit my card rewards directly into my brokerage account, and I've been investing that money steadily into exchange-traded funds. The brokerage account my points go into now has well over $12,000 in it (including both the points I've earned and the investment returns). That's just from credit card points and returns -- I haven't contributed anything else to it.
While that doesn't make me rich in and of itself, no one has ever gotten rich off passing up a free $12,000. That's exactly what I would have done had I steered clear of rewards cards, since I would have had to spend the money I charged on my cards anyway.
You have to be careful with credit cards
One thing Ramsey is right about, though, is that consumers do spend more when using a credit card. In fact, research from Shift Credit Card Processing has shown that people spend up to 83% more when using a card versus cash.
The problem is, however, that evidence suggests that this inflated spending happens even when using a debit card versus when using cash. So, unless you are going to take money out of your bank account regularly and walk around with a wallet full of cash and use it for all of your transactions, this isn't a persuasive reason to pass up rewards cards.
Instead, the best course of action is to just make sure you're spending responsibly regardless of the payment method you use. You can do that by making a budget or setting spending limits and sticking to them.
If you can be responsible with credit cards -- which means repaying your balance in full each month, making payments on time, and not opening more cards than you can easily manage -- then you should get a rewards card and use it for everything you possibly can. You will likely find, like I did, that earning free money in the form of credit card rewards is well worth it.
And if you can't be responsible with your cards, then working on the underlying financial issues that make that the case could be a very good use of your time, as it's likely that those spending problems will extend into other areas of your life even if you never open a credit card at all.
FAQs
High interest rates: Credit card interest rates are at an all-time high, and rewards cards tend to also carry high rates. If you don't pay off your balance in full each month, the interest you accrue may outweigh the value of your rewards.
What did Dave Ramsey say about credit cards? ›
But perhaps Ramsey's most absolute stance is that there is no responsible use of credit cards. There is no reason for anyone to use them. The rewards promised from credit cards are a mirage. You don't need a credit score.
Why does Dave Ramsey say you don't need a credit score? ›
Ramsey does not believe you need a credit score in order to purchase a home because "there are other ways to prove you pay your bills that don't require you to have debt or a credit score at all."
Are credit card reward programs worth it? ›
Rewards credit cards can be tempting, and they might be worth it if you can earn rewards and get cardholder benefits that save you money. However, they may lead to overspending, and the cards could have high interest rates and annual fees.
Are points better than cash? ›
Depending on your specific card, your credit card points could be worth more than $1 per point—offering you more value than if you'd been rewarded in cash. Con: Some rewards cards have higher annual fees. While there are some rewards cards that have no annual fee, there are many that have fees upwards of $500.
Is it better to use credit card points or save them? ›
If your points are worth more as cash back than they would be if you redeemed them for gift cards, why not choose cash back? Likewise, if the value of your points increase when you redeem them for travel purchases, it makes sense to save up your points for your next big trip.
What does Warren Buffett say about credit card? ›
Rule 7: Avoid Credit Card Debt
You can do far better things with your money than give it to credit card lenders in the form of interest in exchange for purchasing power you might not have had otherwise. The idea behind investing is to earn interest, not to give it away.
Do millionaires use credit cards or debit cards? ›
One of the reasons why millionaires use credit cards rather than cash or debit is because of the protection against fraud they provide. If a credit card is lost or stolen, your maximum liability for unauthorized purchases is $50.
What does Dave Ramsey say is the most important thing to do? ›
The No. 1 rule of the Ramsey investing philosophy is not to invest a dime — at least not until you eliminate all of your toxic debt, which he considers to be pretty much everything but your mortgage.
Why is my credit score only good when I have no debt? ›
Credit scores can be confusing, especially when you don't have debt. You might think that having no debt should mean you have a good credit score, but that is not the case. Credit score models influence your credit score, and debt is a portion of the model.
It is 100% based on debt. The credit (or FICO) score is simply an 'I love debt' rating. No part of the credit score calculation even hints at how much wealth you have.” But what does Ramsey mean by this, and why does he emphasize that credit scores are not synonymous with financial success?
Can you live life without credit? ›
Living well without credit is certainly possible. We'll be straightforward here: Many things in life are much easier when you have a good credit score. But lacking a credit score doesn't mean you'll be forced to go live in the woods. You can theoretically live your life without having any credit to your name.
Why is Dave Ramsey against credit card points? ›
Popular money expert Dave Ramsey isn't a proponent of credit card points and rewards. He believes point accumulation comes with a hefty price tag via increased spending, since you may be tempted to rack up those points by buying more stuff.
Do credit cards actually save you money? ›
First, the time value of money, however infinitesimal, will save you money. Delaying eventual payment makes your purchase a tiny bit cheaper than it would be otherwise. Beyond that, by paying with a credit card versus your debit card, cash, or check, your cash will spend more time in your bank account.
What is the disadvantage of having a card with a rewards program? ›
The physical loyalty card also has another disadvantage: customers have to carry it around with them at all times. Not only does it take up space in their wallet, but it can also easily be forgotten at home or in another bag.
Does it make sense to buy credit card points? ›
It can also make sense when you are a few thousand points or miles short of a big redemption, such as first-class flights for your honeymoon. Even if the points or miles aren't on sale, topping off your account to make a dreamworthy redemption could make sense.
Is it smart to get a credit card for points? ›
If you have good credit and can avoid costly interest payments, the cash back, points or miles you'll earn with a rewards credit card can definitely be worth it.
Is it smarter to take the cash back or keep the points on a rewards card? ›
Key takeaways. Cash back credit cards are generally the better choice if you want to earn simple rewards on your regular purchases. A points or miles card may be a better option if you travel often or want to start earning travel rewards on your purchases.
Is pay with points worth it? ›
But the value of one point is typically much less than a penny. You should always strive to get a 1:1 value, which means 1 point is worth 1 penny. To find out if a Pay with Points purchase is valuable, take the cost of the purchase and divide it by how many points are needed.
