Interesting viewpoint on credit cards

[43210]

I suppose the payment method could make a difference for some people. With credit cards, you can see the effect on your balance, and the effect of spending is very real.

But with cash (paper currency), it's just like monopoly money. It's hard to take it seriously. You can throw it around like confetti. After all, it's just paper!

So I can certainly see how one could argue that paying with cash leads to more reckless and uncontrolled spending, while credit card use encourages more financial responsibility.

If there's not a "study" showing this already, I'm sure the "experts" could design one.

[Texas Proud]

Quote:

Originally Posted by cathy63 I am not a Dave Ramsey fan at all, but in this case, his contention is backed up by some solid research. For example: http://www.dffrntwrld.com/wp-content.../xap143213.pdf Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior Priya Raghubir New York University Joydeep Srivastava University of Maryland, College Park

I knew they had research on this, but never did look for it... and it is true that people do spend more using plastic...

Quote:

Originally Posted by ERD50 That may be, but my beef with Ramsey is, rather than explaining this to his audience, and explaining that if you learn to overcome this, you will be helping yourself, he just tells them "Don't use CCs!". If you learn, then instead of spending more, you'll spend just what you decided to, and you will get 2%-4% rewards. I've seen some of his videos, I may have discussed them here, but I definitely did, in length, on another forum with a DR fan. I think in this video, he says some really silly things, something like "I've never had a rich man tell me the reason he is rich is due to CC rewards". Well that's just silly. Just because something didn't "make you rich" doesn't mean you shouldn't do it. It all adds up. Another way to say this is - if you want to do better than the average person, you are going to have to do something different from the average person. So forget about if the average person spends more with a CC, learn to control your spending. Separate from that, I actually don't 'get' why turning over cash makes a difference. I would think, once I've got the cash in hand, I'm thinking - hey, spend this! But with a CC, I know I can't just do that endlessly, so I need to think about each and every purchase, and whether it is of value to me. -ERD50

Two comments on this...

First, Ramsey's audience is not any of the people on this board... so why should he talk about the benefits of using a CC when he knows that the vast majority of people will still spend more using plastic than money... I would guess that people who use money are 'making' more than 2% on not spending...

Second, I know that I spend more using plastic than cash... and I would bet that a good number of people here do the same... (not to mention my DW who will spend no matter what form it is in).... you have to go get that cash on a regular basis and it will make you think a bit more when you are buying stuff... and if you do not have enough money you cannot spend it, but with plastic it is very easy to buy and pay it off at the end of the month... so little things are bought that add up over the month...

[orangehairfella]

I agree, this doesn't really apply to many in this group. It applies well for those that are impulsive and need a system to control their spending urges. My first thought for any particular purchase is "Do I really need this? Will it make my life $N better?". Then I repeat that thought several more times. It's been years since I've made an impulsive $100 purchase.

If anything, credit card rewards have become a weird part of our vacation budgeting. We've paid for almost every vacation we've taken for the last few years with signup bonuses! We don't even think about the impact to our credit score from opening and closing cards anymore. We don't really need amazing credit, we have a paid off house and 2 paid off cars, but every time I look at my score it's higher than the time before. Go figure.

[bw5972]

Quote:

Originally Posted by braumeister with an estimated net worth of $55 million or so, do you think Dave always follows his own advice?

Yes

[athena53]

I'm sure I spend more using plastic but since I'm keeping the withdrawal rate under 4%, I don't worry about it. I used to be on one site-either creditboards or theknot.com- and many people trying to get out of debt swore by Ramsey's "Envelope Method". Every payday you put cash in an envelope for your budgeted amounts for food, charity, gifts, clothing, etc. You don't spend more than what's in the envelope. The group on this board deosn't need that kind of rigidity, but a lot of people do.

[purplesky]

Quote:

Originally Posted by Walt34 Like most (all?) people on the forum we use credit cards extensively since this being the 21st century it'd be kind of hard to get along without them, but we pay them off in full every month so we don't pay cc interest. Last night I stumbled across this Dave Ramsey rant (he calls it that himself) that even if you pay off the cc every month you'll still spend more than if you pay cash. I'm not so sure, in part because we are very much aware of how much we spend and on what because we track it carefully in spreadsheets and Quicken. Ramsey holds that if you have to lay down $100 bills at the grocery store your brain says "Ouch!" and that will make you spend less. He maintains that the same thing does not happen with plastic. But when I use plastic I know that within a month at most my bank account is going to be drained by whatever $$ number is on the cc receipt and in my case at least, my brain still says "Ouch!" What say you? The video is only 6:37 so not too long. https://www.youtube.com/watch?v=np5i5oWfqAo

Dave Ramsey never mentions the Fidelity or Costco credit cards because he knows they are a great deal.

Dave Ramsey always uses the same old airline miles credit card example of how people spend big money with credit cards to get airline miles. Sure.


Why would I use cash if Fidelity Visa is going to help me fund my Roth IRA?

I lose money if I pay cash. No I don't spend more using a credit card because I pay for purchases as soon as they post and making a current balance payment is available.

Dave Ramsey also thinks a 0 credit score is a good thing. Sure Dave.

Clark Howard definitely has a more realistic view on credit card use.

[RobbieB]

A zero credit score? How is that even possible?

[purplesky]

Quote:

Originally Posted by RobbieB A zero credit score? How is that even possible?

Apparently if you don't use any credit and close all accounts your FICO score will eventually go to zero.

Dave Ramsey constantly reminds his audience that he is a multi-millionaire and that he has a zero credit score.

Dave Ramsey tells his audience that he cannot rent an apartment because he has no credit score. BUT he is so rich that he can buy the apartment complex.

So the FICO score system according to Dave Ramsey just sucks.

But how is a landlord suppose to screen potential renters Dave?

And Dave Ramsey supposedly owns a huge amount of rental Real estate in the Nashville area.

I am guessing Dave Ramsey must do credit score checks for his potential renters.

[gar1092]

I don't know if there was a formal study on the matter but the casinos can't be wrong. People pluck down plastic chips quicker than paper money and they know it.

[jazz4cash]

Not a fan of Ramsey because of his one size fits all advice. Maybe appropriate for his audience but he doesn't put any disclaimers on his advice. It took me awhile to wrap my head around using a cash back card for EVERYTHING to accumulate rewards. My minimum is $5, sometimes less if it's a hassle to pull cash out for a coffee or whatever. I get daily updates on my spending so I'll take the other side of the argument. Seeing the daily total has the effect of slowing my rate of spending, especially when the end of the billing cycle is approaching and I know I'll get a free loan for 30 days if I postpone a discretionary purchase. More to the point it makes no difference if you spend more if you can afford it.

[meierlde]

So then are debit cards different that credit cards or did he not manage to distinguish them? Also is paying by check (all be it in some places old fashioned) the same as a credit card. (I do see a lot of checks written in the grocery store).

[purplesky]

Quote:

Originally Posted by gar1092 I don't know if there was a formal study on the matter but the casinos can't be wrong. People pluck down plastic chips quicker than paper money and they know it.

Its a good thing Costco and Amazon are not Casinos.

[JDARNELL]

I did an experiment for about 6 months of using cash vs credit card. Using cash I spent 23% less than when I used cards. It was interesting. Today we use his every dollar app to categorize everything we spend. I think it has about the same affect as paying with cash for us. Its a good exercise and we really don't watch the total amount of what we spend from a budgeting amount overall. Just data collection I guess.

[jollystomper]

Quote:

Originally Posted by REWahoo Walt, I think Dave may be correct with respect to his audience. Those of us on this forum are a far cry from the typical folks he's trying to reach, so I'm in the same "ouch" boat as you. No matter what means you use to spend it, the money comes out of your account just the same.

I agree with this. His audience is not those, like many on this forum, who practice fiscal discipline, are not in debt, LBYM, etc. If you listen to the folks who call in to his show and ask for his advice, you would realize that the last thing they need is to be tempted with "I'll get a credit card and I promise I'll pay it off in full every month". Most of these folks need to be figuratively smacked in the face with harsh financial realities.

Because this advice does not apply to me does not necessarily mean, given how the average American deals with debt, that it will not apply to many other people.

[purplesky]

Quote:

Originally Posted by meierlde So then are debit cards different that credit cards or did he not manage to distinguish them? Also is paying by check (all be it in some places old fashioned) the same as a credit card. (I do see a lot of checks written in the grocery store).

Dave Ramsey always claims that debit cards offer the same theft protections as credit cards.
Clark Howard disagrees.

Dave Ramsey always tells people that they can rent a car with a debit card. Sure Dave. Good luck with that.

I think checks are processed now immediately at the purchase point just like a debit card transaction.
Which is nice if you write checks.

I really don't know why anyone would use a debit card for transactions in 2018 with so many banks offering cash back now on credit cards.

[43210]

"Dave Ramsey says that you can withdraw 8% per year from your portfolio in retirement based on a 12% rate of return and 4% inflation."

[jollystomper]

Quote:

Originally Posted by Texas Proud Second, I know that I spend more using plastic than cash... and I would bet that a good number of people here do the same... (not to mention my DW who will spend no matter what form it is in).... you have to go get that cash on a regular basis and it will make you think a bit more when you are buying stuff... and if you do not have enough money you cannot spend it, but with plastic it is very easy to buy and pay it off at the end of the month... so little things are bought that add up over the month...

A little personal anecdote: for DW's 60th birthday one of the gifts I gave her was $600 in cash, to spend however she wanted. She had never had that much in cash at one time for herself. Months later... she had not spent any of it. She found it much more difficult to part with the cash that if I have told her to charge that amount on a credit card. She has put it into her bank account.

[purplesky]

Quote:

Originally Posted by 43210 "Dave Ramsey says that you can withdraw 8% per year from your portfolio in retirement based on a 12% rate of return and 4% inflation."

Dave Ramsey is just a financial entertainer but I don't get how he is able to give so much terrible specific investment advice to his audience. Without some type of disclaimer.

He admits all the time he just makes stuff up.

Its funny Dave Ramsey just completely avoids ETFs.

And don't forget about "Americas retirement expert" Chris Hogan!

[foxfirev5]

Like many here we use a cash back card for everything we can. I don't see any increase in spending vs the old cash only days. The cc is paid in full with funds coming from a monthly allowance in Fido cash management.
Our food purchases are the biggest item but we form a shopping list after scouring the weekly ads and deviate very little. The utility bills are likewise paid with the card. No extra splurging there either. The gas tanks in the cars only hold so much. Other shopping is so minimal it doesn't make the spreadsheet. (less than 3%). Even our vacation spending is budgeted. It's a rather high number but we stay in budget.

The credit card is just another tool with benefits. However as others have stated in various ways most of us are just wired a little different than the average Joe or Jill.

[Yarnstormer]

I wonder if the popularity of credit cards has increased the cost of goods overall. I’ve always said that if the average person had to pay cash for vehicles they would never cost so much, not just because they did not have the cash, but because it is a ridiculous number