I like much of what Dave Ramsey says. I think his counsel on living below one’s means and paying off debt are great. And for the masses, I agree that one should not use credit cards. But there are a couple of things we differ on. One, I think retirement savings is a little more complex then Ramsey says as one does need to consider one’s age and present savings. The percentages in various funds should vary considering one’s age, risk tolerance and financial situation. Second, I don’t think credit cards are all bad for all people.
In this audience there are many who use credit cards responsibly and others who struggle with it. So allow me to help you see your strengths and weaknesses, and then make an informed decision concerning credit card use.
Reasons not to use credit cards
People tend to spend more money when they use credit cards than when they use cash. Numbers vary, but it is probably safe to say that the average person would spend 15% more. If you receive 1, 2 or even 5% in cashback bonuses, that does not recover the extra amount spent.
If you carry an ongoing balance then do not use credit cards. In one’s financial planning, paying off current credit cards should be priority. If there is a tendency to carry an ongoing balance then you may end up paying twice the amount for a spontaneous credit card purchase.
If you tend to be late on payments then do not use credit cards. The fees are not worth the convenience of use.
Reasons to use credit cards
Credit cards are a nice convenience when making hotel reservations, booking flights, etc. If you pay off your cards in full each month, if you are not late with payments, and if you have a strategy for their use, credit cards can provide a source of free money.
Strategy for credit card use
If you decide to use credit cards, first develop a plan for their use with certain boundaries in place. For example, I use credit cards for gasoline purchases, I don’t think I would use much less gas if cash was paid. I use credit cards to pay bills. I think my electrical usage would be the same whether I use a credit card or write a check after receiving the bill. And I use credit cards on vacation. We tend to be more extravagant in our spending on trips anyway, so I don’t think the card use leads to more spending.
Now there are a lot of places I do not use a credit card. For instance, I do not use a credit card at grocery stores. There are cards that pay up to 6% at grocery stores. However, these cards’ discounts don’t typically apply at Walmart, Sam’s Club, Costco, etc. Likewise, grocery stores tend to be places where it is quite easy to spend more with a card than with cash. Other than on vacation, I don’t use credit cards at restaurants. With a card in hand it would be too easy to order an extra appetizer or spend a few extra dollars on the main platters. So, evaluate how you may use your cards in a discerning manner and how your cards can provide you a boost in income.
Evaluate your cards
For someone who flies frequently a card that provides air mile bonuses might be great. I don’t travel much so I have cards that help with what I do buy. Below I will simply list the credit cards I have found most beneficial. Just so you know, while I would like to generate some revenue through my recommendation of such cards, I do not have any such financial relationship established. So below are my cards:
Discover – There are rotating categories that provide 5% cash back with 1% on everything else. These bonuses have to be set up quarterly on their website. But for the 3rd quarter the cash back bonus is for home improvement stores so I do use it for this. Likewise during some quarters I receive 5% cashback on Amazon purchases. I don’t go overboard with this either, so I use the card on Amazon. For people just getting a Discover It card, the cash back bonuses are doubled for the first year!
Sam’s Club Mastercard – This card provides 5% cash back on gas, 3% cash back on travel and 1% cash back on everything else. I use this for all my gas purchases and hotel stays. To many people’s surprise, the 5% cash back on gas applies to all gas stations except competing wholesale clubs. The only negatives that I see on this card are that the bonus only comes once a year and the check received has to be cashed at Sam’s. Likewise, if you cancel your club membership, then you lose the bonus.
Citi Double Cash Card – I stand to make between $500 and $600 on this card this year. If you are looking for a good return and ease of use, this is it. You don’t have to sign up for anything online or try to remember what quarter it is and where to use the card. This card will provide a net return of 2% for everything you purchase. I use it to pay for medical bills, natural gas bills, electrical bills, cell phone bills, cable TV bills, etc. Once you have initially read the procedures and then paid a bill online, the time required to pay a bill online is similar to the time required to write a check. So now I look forward to paying bills, because when I pay a $300 electrical bill I know that my method of payment is earning me $6.47. I receive 1% cash back when paying the utility bill and then another 1% when paying off the credit card. Added to that is the savings of a .47 stamp. Now Wiser Dollar strategies aren’t just about finances, but also about time. Earning $6.47 for five minutes of work is not bad; that calculates to making over $77 an hour, tax free! As an added bonus, I can determine the date the bill is paid online. So if I’d rather hold the payment until the day before payment is due, I can.
Some cautions when paying bills online
A couple of cautions on paying bills online. First, check to see if the company you’re paying issues a convenience fee for credit card use. If so, do not use the card. In Lubbock, no convenience fee is issued for Atmos Energy, LP&L, AT&T, State Farm Insurance and Suddenlink, so I pay all these companies with the Citi Double Cash card. Now my mortgage company is a different story, so I write them a check.
Second, read carefully what all you click on with the companies’ websites. Some companies will offer electronic billing, or automatic payments. I do not do either. For my own personal accountability, I like receiving the paper bill in hand and looking over charges before paying. I prefer to avoid the automatic transferal of money from my accounts without my overviewing it first. The paper bill in hand provides the structure for me to do that. Too often I receive emails with the intent of checking them out later and I never do.
So again, I do enjoy and apply much of what Dave Ramsey says. And for the masses, credit card use should probably be avoided. But for some who maintain certain discipline, their use can be beneficial in practicing Wiser Dollar strategies.
A great site to review and compare credit cards is Nerd Wallet.