This is 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 opinions on consumer debt. In short: he really opposes it.
Ramsey thinks getting into debt means buying something you can’t afford and getting stuck paying interest. And to be fair, he’s right about the latter. Most of the time, financing a purchase means accumulating interest to some degree (unless you qualify for a 0% financing offer and manage to pay off your debt before the interest starts accumulating).
Certainly, there are purchases that are really acceptable to finance, such as a house or a car. Most of us don’t have the money to buy a house, and even a vehicle can be difficult to pay for in full.
Ramsey doesn’t like mortgages or car loans – but he really does not support credit cards. And if it were up to him, consumers wouldn’t use them. But is never using a credit card really such good advice? Here’s why that might not be the case.
The downside of not using credit cards
It’s true that credit cards can lead to costly debts – but it all depends on how you use and manage them. If you charge expenses to a credit card that you pay off in full each month, you won’t fall into the debt trap that 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 several ways. First, most credit cards offer cash back or rewards for the purchases you make. It’s free money.
Second, credit cards can help you build credit. If you pay off your balance in full each month and make your payments on time, this positive activity will show up on your credit report, which could lead to a higher credit score. And a higher credit score could allow you to borrow money affordably when you need it, such as when you’re ready to buy a house or finance a car.
In reality, do not using a credit card could actually backfire because without this payment history, you may have trouble establishing a credit rating for yourself. And if you don’t have a credit score, you may have a similar experience to consumers with poor credit in that you may struggle to get a loan.
It’s okay to go rogue
Dave Ramsey has a lot of solid financial advice to offer. But never using credit cards may not be a reasonable thing for most consumers. And if you don’t yet have an established credit history, following this advice could actually hurt your finances rather than help them.
Let’s say you’re ready to stop renting and want to buy a house – a move that could bring you greater financial security. If you don’t have a credit score, you may not be able to get a mortgage. But using credit cards might actually be your ticket to establishing that score.
Plus, the cash back you get from your credit cards could make it easier to pay your bills or increase your savings. So if you take the right approach to your credit cards, they could easily help improve your finances.