Interesting viewpoint on credit cards

[jollystomper]

The field of Behavioral Economics addresses why people make financial decisions that don't make sense if you look strictly at the numbers. Much of what Ramsey teaches recognizes this. One might even say (cough, cough) that people who insist on having a paid-off home in retirement even though their investments are yielding twice the mortgage interest rate they'd be paying are behaving irrationally.

I know of at least one well-known financial talk show host who agrees with this, saying you should maintain the largest mortgage payment you can afford, your money can be put to better uses than paying off the house.

 

[FANOFJESUS]

Dave said people using credit cards spend 12-18% more. Do I spend 12-18% more no but I see his point. I bet I do spend more. Maybe it is only 3% more but it is still more.

 

[Nemo2]

Dave said people using credit cards spend 12-18% more. Do I spend 12-18% more no but I see his point. I bet I do spend more. Maybe it is only 3% more but it is still more.

Is it more on every purchase, or do you, (as we often do), add items that we will need, in order to reach an imaginary & flexible minimum?

(If we paid cash, (which we don't), we'd likely have more individual transactions but the total spent would be the same.)

 

[athena53]

I know of at least one well-known financial talk show host who agrees with this, saying you should maintain the largest mortgage payment you can afford, your money can be put to better uses than paying off the house.

I wouldn't go that far! I WAS locked into a big mortgage during the years that I lived in NJ- HCOL area and that's what you had to do if you wanted a decent house in a good school district. I'm happy to say that I made a lot of money when my first husband and I sold the marital home when we divorced and also when I sold the house I bought after the divorce. It could easily have gone the other way, especially if I'd sold at the worst point in the financial crisis. DH and I moved to the KC area in 2003 and bought about half the house we could afford. We downsized 2 years ago and barely got out what we put into it. I'm very glad we didn't mortgage ourselves to the hilt. My current monthly mortgage payment before taxes and insurance is only $700.

However, I have a relative who will spend right to the limit on the CC, and then try to get the limit raised. She will forever pay the monthly interest cost of $100 as she keeps using the CC when possible, and only paying the minimum.

Yeah, that was my Ex. Any limits left on the credit card was money he could spend.

 

[LaurenLuna]

Credit is a great tool for me, allows me to earn hundreds of dollars per year I would otherwise not have earned.

 

[Zathras]

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.

...

Exactly!
People get so wrapped up in that this is supposed to apply to every individual in every situation.
It doesn't, and in general, it is good advice.

In general, people spend more money if using a credit card, than if using cash. There have been many studies on this and it works out that way to an amazing level. Does it apply to every individual? No, but it works quite often.
It works that way in games too. Charge up front for an App and it brings in some money. Take the same App, make it free, but with 'in-app' purchases of things and more money flows in.

When you see this, from ANY media, don't criticize it on the basis of the advice not being applicable to you as an individual. They are talking in generalities.

 

[Danmar]

I don’t think there is much doubt that most people would spend less if they paid cash for everything. But the idea of walking around with thousands of dollars in my wallet just seems ridiculous. I would have to get the ATM cash dispersing limit raised big time. Granted, obviously I’m not the prime audience for that guy, what’s his name again?

 

[Amethyst]

These salespeople's [and they are salespeople; they're selling their approach] target audience consists of people who are not inclined to think for themselves, and therefore are very impressed by an air of great confidence. Anything less than great confidence might put them off. You probably are a skeptical, independent thinker, so you find the confidence thing annoying. You are too busy thinking of all the ways each over-confident statement might have a bug in it.

I think that was the first Dave Ramsay video I watch. It's likely my last. Man, he's annoying. I can't stand to listen to that kind of "I know it all" type delivery.
.

 

[Rianne]

The best takeaway from Dave Ramsey is avoid interest and learn to budget. My CC organizes my spending, shows me a pie chart of how much I spend and where, gives me a year end summary of every single penny I've spent and where.

Just pay it off every month and it's a great way to see spending and budget. And if I feel I've been unfairly charged, I dispute it. They stand behind my disputes, especially when I accidentally signed up for a service I do not need. I've tried to cancel service and get a refund and the run a round is ridiculous. My CC handles all that. Plus they let me know when a charge is weird. Someone opened an account in DH name in FL. Had his SS and birthday. It was a business account, we had no clue. CC caught it, informed us, told us the names of the people who opened it and cancelled the account before it caused any problem.

 

[Pilot2013]

The best takeaway from Dave Ramsey is avoid interest and learn to budget. My CC organizes my spending, shows me a pie chart of how much I spend and where, gives me a year end summary of every single penny I've spent and where.

Just pay it off every month and it's a great way to see spending and budget.

Great idea for you, but not for Dave Ramsey's audience. As has been stated by many here, his TOTAL approach is not for everyone. I think he makes it very rigid because people that tend to abuse CC's, much like drugs, have little self control, and often use MANY different reasons/justifications.

 

[purplesky]

My wife and I have listened to Dave Ramsey on and off for many years typically by putting on the podcast while on a long drive. Both my wife and I enjoy many of the absurd calls. We always pretty much know what Dave’s response will be.

As many have already stated he is motivational speaker and entertainer on the subject of finance. Much of his advice is sound. Self control, financial discipline, taking action to form a budget, working with your partner to both engage financialy. These are all good things.

I use credit cards and collect cash back. I read lots of financial books and information online. I use the advice that makes sense and ignore the rest.

What confuses me is the reaction to attack Dave Ramsey. I see his religion, politics, or net worth irrelavent to the OP.

Dave Ramsey freely admits his techniques are not about the most efficient way to get out of debt based on math. It is not a math problem for most people, but one of self control and motivation.

Ditto - just turn the channel already....

Respectfully,
SwaneeSR

Dave Ramsey attacks CNN money, CNBC, Millennial bloggers, Harvard studies,Motley fool, etc, all the time on his show.

Dave Ramsey has some very radical ideas about personal finance and Dave Ramsey gives bad investment advice that many people in the financial advisor space question often.

In the past several years Dave Ramsey has decided to be completely divisive every chance he gets. Dave made the choice.

The whole Dave Ramsey experience is church based and he is a evangelical christian.
So the religious community started to question the size of Dave Ramseys mega mansion in Nashville and question his vast wealth as a christian and what he is doing with it. Its funny. (GOOGLE DAVE RAMSEYS HOUSE)

So Dave Ramsey gets into a war of words with the christian community and gets super defensive about his wealth and being a christian.

I have been listening to Dave Ramsey on and off for about 13 years so I know his routine.

Yes overall Financial Peace University has helped many people in churches all around the country to get out of debt.

But Dave Ramsey has no business pretending he is a financial advisor.

 

[joeea]

Dave said people using credit cards spend 12-18% more. Do I spend 12-18% more no but I see his point. I bet I do spend more. Maybe it is only 3% more but it is still more.

You should decide to pay for everything using only pennies.
I guarantee you'll spend less.

 

[joeea]

We downsized 2 years ago and barely got out what we put into it. I'm very glad we didn't mortgage ourselves to the hilt.

I don't understand what having a mortgage has to do with this?

If you barely got out what you put in - that would be equally true if you paid cash or mortgaged it, right? Having a mortgage doesn't change the value of the house.

Perhaps you meant you are "very glad we didn't buy more house than we actually did"?

 

[Pilot2013]

Dave Ramsey attacks CNN money, CNBC, Millennial bloggers, Harvard studies,Motley fool, etc, all the time on his show.

Dave Ramsey has some very radical ideas about personal finance and Dave Ramsey gives bad investment advice that many people in the financial advisor space question often.

In the past several years Dave Ramsey has decided to be completely divisive every chance he gets. Dave made the choice.

The whole Dave Ramsey experience is church based and he is a evangelical christian.
So the religious community started to question the size of Dave Ramseys mega mansion in Nashville and question his vast wealth as a christian and what he is doing with it. Its funny. (GOOGLE DAVE RAMSEYS HOUSE)

So Dave Ramsey gets into a war of words with the christian community and gets super defensive about his wealth and being a christian.

I have been listening to Dave Ramsey on and off for about 13 years so I know his routine.

Yes overall Financial Peace University has helped many people in churches all around the country to get out of debt.

But Dave Ramsey has no business pretending he is a financial advisor.

Whatever....

 

[ncbill]

Today it is much easier to track spending with cards (credit or debit) vs cash.

My credit card expenditures are automatically categorized in Mint, and their algorithm is reasonably accurate.

So if I exceed a budget category I'll know in short order, well before I go 20-30% over.

 

[athena53]

I don't understand what having a mortgage has to do with this?

If you barely got out what you put in - that would be equally true if you paid cash or mortgaged it, right? Having a mortgage doesn't change the value of the house.

Perhaps you meant you are "very glad we didn't buy more house than we actually did"?

Yes- the latter. I remember the late 1970s/early 1980s when the conventional wisdom was "buy the most expensive house you can afford". I'm really glad we didn't do that.

 

[flintnational]

Credit cards - 2% rebates, fabulous trips, and budgeting help! Do poor people know about these? Apparently everyone can live the high life with a credit card. What could possibly go wrong.

 

[Pilot2013]

Credit cards - 2% rebates, fabulous trips, and budgeting help! Do poor people know about these? Apparently everyone can live the high life with a credit card. What could possibly go wrong.

 

[swaneesr]

Dave Ramsey attacks CNN money, CNBC, Millennial bloggers, Harvard studies,Motley fool, etc, all the time on his show.

Dave Ramsey has some very radical ideas about personal finance and Dave Ramsey gives bad investment advice that many people in the financial advisor space question often.

In the past several years Dave Ramsey has decided to be completely divisive every chance he gets. Dave made the choice. [emoji6]

The whole Dave Ramsey experience is church based and he is a evangelical christian.
So the religious community started to question the size of Dave Ramseys mega mansion in Nashville and question his vast wealth as a christian and what he is doing with it.[emoji23] Its funny. (GOOGLE DAVE RAMSEYS HOUSE)

So Dave Ramsey gets into a war of words with the christian community and gets super defensive about his wealth and being a christian. [emoji23]

I have been listening to Dave Ramsey on and off for about 13 years so I know his routine.

Yes overall Financial Peace University has helped many people in churches all around the country to get out of debt.

But Dave Ramsey has no business pretending he is a financial advisor.

First of all. I agree with the concept that most people would spend less using cash than a credit card. It is common sense. The easier and more convienent the purchase, the more you’ll spend.

Secondly, the Dave Ramsey rant is just that. When he rants - he calls it that. This is not his typical response to a caller. In my opinion he exhibits more patience than most people. This was an email question. He did not seem to mean. Just disagrees with the emailer.

purplesky - you certaintly have a right to your opinion. It appears that you feel Dave Ramsey is a very bad person.

In general, I suspect many people who frequent this site are good financial managers. In fact, many of the concepts and techniques that I have been exposed to here are very advanced. Mr. Ramsey is speaking to the general public - not those here. I do not say this out of arrogance. I am only attempting to illustrate the fact that on average, people with less financial training and less financial means are not using the tool of money to build wealth. Many people need simple rules to break the cycle. We all know people who do not use credit or credit cards well. For many people, they are better off paying with cash.

Respectfully,
Swanee

 

[samclem]

I suppose it is like alcohol. Some people can enjoy a glass of wine with dinner and it improves their life and probably their health. Other people, if they have a drop of alcohol, have a strong likelihood of going on a long bender with serious risk to their health, relationships, job, etc. It makes perfect sense that the later group should swear off the stuff, and will be helped by a total abstinence message. Maybe some of these people would tell >everyone< to abstain from alcohol, because it can have ill effects. But such admonitions can be ignored by a large part of the population without any problem.

Abstaining from credit card use (as recommended by Ramsey) would leave me poorer, would reduce the quality of my life, and offers zero benefits. So, I disregard that advice. And, since I find other parts of his advice also inappropriate, and because I don't find him to be entertaining, I no longer listen to him. But, some people need his approach, or like to listen to him, or just want to wear the hairshirt. Okay for them. But he's not giving advice with universal applicability (something he doesn't feel a need to say) . And to the degree folks just follow his rules without gaining a deeper understanding of things, they lose a chance to improve their lot.

 

[purplesky]

First of all. I agree with the concept that most people would spend less using cash than a credit card. It is common sense. The easier and more convienent the purchase, the more you’ll spend.

Secondly, the Dave Ramsey rant is just that. When he rants - he calls it that. This is not his typical response to a caller. In my opinion he exhibits more patience than most people. This was an email question. He did not seem to mean. Just disagrees with the emailer.

purplesky - you certaintly have a right to your opinion. It appears that you feel Dave Ramsey is a very bad person.

In general, I suspect many people who frequent this site are good financial managers. In fact, many of the concepts and techniques that I have been exposed to here are very advanced. Mr. Ramsey is speaking to the general public - not those here. I do not say this out of arrogance. I am only attempting to illustrate the fact that on average, people with less financial training and less financial means are not using the tool of money to build wealth. Many people need simple rules to break the cycle. We all know people who do not use credit or credit cards well. For many people, they are better off paying with cash.

Respectfully,
Swanee

No I do not think Dave Ramsey is a bad person at all.
Dave Ramsey has a family charitable foundation that I am sure helps many people.
He promotes giving all the time which is a great thing.

Most of the people that do the debt free screams make very good incomes and many are college educated.
Most seem to get exposure to Dave Ramsey at their church where they take the Financial Peace university class.

Many people just buy 2 expensive cars and a boat and go to Disney world on a credit card and next thing you know you are calling the Dave Ramsey show.

Maybe Dave Ramsey should design a Financial Peace 2 course that would be more suitable for 2018.
The millennial generation just isn't going to use cash.

This whole Dave Ramsey ignore your credit score thing is a bad idea.

My DS is only 23 and he now has 2 credit cards and has a good credit score with established credit of his own.
The funny thing is my son grew up listening to Dave Ramsey and we would always say "Better than I deserve" and "live like no one else so you can later live like no one else".

But I had to make a choice as a parent and not follow Dave Ramseys advice because I wanted my son to establish credit as soon as possible.

 

[Months.in.Wyoming]

Might as well use CC

I'm a DR fan. I enjoy his patience with people and hearing about Millionaires and their stories. Simply entertainment. Somewhat helpful at the end of the day. But as many of you we use CC's.

It occurs to me that the stores need to build the CC fee into their pricing. We pay for those fees whether we're using cash or CC. So, might as well us the CC for the rewards to get something for what you're going to pay anyway.

BTW - if you spend a lot (helps if still traveling for business) and like to travel domestically / Caribbean and live in a SWA town. There is no better card than the Chase Visa SW card. Companion pass get's our "rewards" up to the 12% level.

 

[Walt34]

I suppose it is like alcohol. Some people can enjoy a glass of wine with dinner and it improves their life and probably their health. Other people, if they have a drop of alcohol, have a strong likelihood of going on a long bender with serious risk to their health, relationships, job, etc.

That's probably a good analogy. My father and a cousin were/are alcoholics and could only live a normal life by complete abstinence so I'm familiar with the issue.

My DS is only 23 and he now has 2 credit cards and has a good credit score with established credit of his own.

Good for him! I got my first credit card at age 22 and the urging of my older sister simply to establish a credit rating (as it was called then). I'd pull it out of a drawer and use it two or three times a year and pay off the bill when it came in. That did come in useful later on.

One of the issues I had with credit cards is that my parents had run up a huge cc bill at Montgomery Ward when I was about 13 and it took three years of concentrated effort for them to pay it off. And when you're 13, three years is FOREVER, or at least it seemed so. That made an impression on all three of us kids and we learned the lesson well. None of us has ever had a problem with being too deep in debt.

Proof that an example doesn't have to be a good one to teach a kid something worth knowing.

 

[scrabbler1]

Good for him! I got my first credit card at age 22 and the urging of my older sister simply to establish a credit rating (as it was called then). I'd pull it out of a drawer and use it two or three times a year and pay off the bill when it came in. That did come in useful later on.

I also got my first CC when I was 22, 6 months out of college. I didn't use it very often, but it did come in handy when I went out of town on vacation (back in my bigger traveling days). I used it to buy airplane tickets and didn't have to worry about carrying enough cash if I wanted to buy stuff when out of town.

 

[purplesky]

That's probably a good analogy. My father and a cousin were/are alcoholics and could only live a normal life by complete abstinence so I'm familiar with the issue.



Good for him! I got my first credit card at age 22 and the urging of my older sister simply to establish a credit rating (as it was called then). I'd pull it out of a drawer and use it two or three times a year and pay off the bill when it came in. That did come in useful later on.

One of the issues I had with credit cards is that my parents had run up a huge cc bill at Montgomery Ward when I was about 13 and it took three years of concentrated effort for them to pay it off. And when you're 13, three years is FOREVER, or at least it seemed so. That made an impression on all three of us kids and we learned the lesson well. None of us has ever had a problem with being too deep in debt.

Proof that an example doesn't have to be a good one to teach a kid something worth knowing.

My older sister cosigned for me on a car loan. It was a Nissan Sentra with no conditioning and I think it’ stickered for about $5000.
It’s funny I think the payment was like $80 a month.

That was a huge favor for her to do that For me to help establish credit And to get a reliable set of wheels!

I remember my mom had Issues with her JCPenney’s credit card.

Yes money issues and personal finance Can have a huge effect on families.
It seems the older I get the more I realize that some of my parents money struggles have kind of stayed with me.