Dave Ramsey has made a name for himself in the field of personal finance. So when he talks, people tend to listen. A firm believer in empowering consumers to make wise financial decisions, Ramsey isn’t shy about expressing his feelings about credit cards. In short, he believes it is a dangerous tool that can all too easily lead consumers into debt.
Is he right ? Should you avoid credit cards or are they safe to use?
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What you need to know about credit cards
Ramsey is certainly right on one point. Credit card can be very dangerous.
Since credit card companies don’t require you to pay off your entire balance immediately, it’s easy to fall into a trap of carrying a balance month after month, while still earning credit card interest on the loan. amount you owe. In fact, this is precisely how credit card companies make their profits – by collecting interest and charging other fees (like late payment fees) that cost consumers money. .
Not only can a credit card balance cause you to pay more than you need to on your purchases, it can also hurt your credit score. One factor that goes into calculating your score is your credit utilization rate, which measures the amount of available revolving credit that you are using at a time. The higher the overdue balances on your credit cards, the more likely this ratio is to increase, which can lower your credit score and make it harder to borrow money affordably (or not at all). when you need it.
But while the credit cards to do opening the door to abuse and financial damage, they are not all bad. And when used correctly, they can actually help improve your financial situation.
Many credit cards offer cash back or reward points for purchases you need to make. So if you regularly pay for groceries, gasoline, and other essentials, the cash back you collect is free money in your pocket.
Credit cards also offer a certain degree of protection to consumers. If you charge a purchase to a credit card that turns out to be faulty and your merchant won’t refund you, you’re out of luck, as you can turn to your credit card company for cash. help to dispute the debit.
Plus, credit cards can make it easier to keep track of your spending. When you pay for your purchases with cash, it can be difficult to remember how much you have set aside. With a credit card, you can log into your account anytime and see what your balance looks like.
It’s those credit card benefits that Dave Ramsey doesn’t talk about as much. Naturally, he knows how easy it is to abuse a credit card and tends to discourage consumers from using them. But if you use yours correctly, you could be helping your personal finances rather than hurting them.
Basic rules for using credit cards
If you plan to use credit cards, either regularly or occasionally, be sure to follow these rules:
- Never charge more than you can afford to pay when your bills come due
- Always read your credit card agreement so you understand what you are signing up for
- Check your credit card balance regularly throughout the month – don’t just wait for your bill to arrive to see what to expect
- Don’t apply for too many new credit cards at once, as this could damage your credit score
- Don’t spend extra money on your credit cards just to rack up cash back rewards or rewards – in the end, it won’t benefit you financially
Following these rules can help you get the most out of your credit cards, even if Dave Ramsey says you better avoid them.