It’s advice that may not work for you.
- Dave Ramsey is generally against consumer debt.
- Not using credit cards could make it difficult to establish a credit history.
Financial guru Dave Ramsey has long had strong views on consumer debt. In short: he really opposes it.
Ramsey believes that going into debt means buying something you can’t afford and getting stuck paying interest. And to be fair, you’re right about the latter. Most of the time, financing a purchase means accruing interest up to a certain point (unless you qualify for a 0% financing offer and manage to pay off your debt before interest begins to accrue).
Okay, there are some purchases that are really okay to finance, like a house or a car. Most of us don’t have the money to buy a home, and even a car can be difficult to pay off in full.
Ramsey doesn’t like mortgages or car loans, but he really can’t stand credit cards. And if he did it his way, consumers wouldn’t use them. But is using a credit card really good advice? Here’s why it may not be.
The downside of not using credit cards
It’s true that credit cards can lead to costly debt, but it all depends on how you use and manage them. If you charge expenses to a credit card that you pay in full each month, you won’t fall into the debt trap so many consumers fall into, and you won’t have to spend extra money on interest.
In fact, using a credit card could benefit you in a number of ways. First of all, most credit cards offer cash back or rewards for the purchases you make. That’s free money.
Second, credit cards can help you build credit. If you pay your balance in full each month and make your payments on time, that positive activity will be listed on your credit report, which could lead to a higher credit score. And a higher credit score could be your ticket to affordably borrowing money when you need it, like when you’re ready to buy a home or finance a car.
In fact, not using a credit card could backfire on you, since without that payment history, you may have trouble establishing a credit score for yourself. And if you don’t have a credit score, you may have a similar experience to consumers with bad credit in that you may have difficulty getting a loan.
It’s okay to get rogue
Dave Ramsey has a lot of sound financial advice to offer. But never using credit cards may not be reasonable for most consumers. And if you don’t already have an established credit history, following that advice could hurt your finances rather than help them.
Let’s say you’re ready to stop renting and want to buy a home, a move that could lead to greater financial security. If you don’t have a credit score, you may not be able to get a mortgage. But using credit cards could actually be your ticket to establishing that score.
Plus, the cash back you get from your credit cards could make it easier to keep up with bills or add to your savings. So if you take the right approach with your credit cards, they could easily end up helping you improve your finances.