I Like Dave Ramsey, But He Is Still Wrong

by Kevin on July 1, 2008

I was planning on talking about buying a scooter to save on gas costs today, but I got an interesting comment yesterday that I felt warranted discussion.

The comment was left on my post about earning more than $400 in free cash back using my credit card. I said in the post that I think Dave Ramsey is flat out wrong for his anti-credit stance. Here’s the comment:

Nice try trashing Dave Ramsey for no reasons. I sincerely request to think twice before you trash him again. He is not preaching to cut plastic or get out of debt for normal people like me and you who manage debt prudently. His target audience is way over the head in credit card debt and their finance charges for one month is greater than your annual cash back from Amex Blue. For people like these it makes perfect sense to not use credit card. Think about it before you cash in your rebate check next time – Amex/Discover charge about 3% for gas station operator, you are paid 5% rebate for charge the gas expense to their card – guess what – the rest of 2% is paid to you from the 29% interest rate and insane finance charges and cruel penalties these credit card companies charge to people who are already in deep trouble. Pick up the documentary “In debt we trust” from the local library and open your eyes.

For starters, I’m glad this person commented on the blog. It opens up the discussion, and heck, I love getting opinions that challenge my own. So I am not writing about this to just rip this person’s argument apart or anything. I just disagree.

Dave Ramsey is a big name author and radio personality in the personal finance world. He went through very hard financial times in the 1980’s and has bounced back to make millions of dollars. He has written several popular books, and always tells his listener’s to stick with his “Baby Steps” to financial freedom.

Here are those baby steps:

  1. $1,000 to start an emergency fund
  2. Pay off all debt using the debt snowball
  3. Save up 3-6 months of expenses
  4. Invest 15% of your income into Roth IRAs and other pre-tax retirement vehicles
  5. College funding for children
  6. Pay off home early
  7. Build wealth and give; invest in mutual funds and real estate

Now that all seems well and good on the surface. And I agree with the commentor’s point — Ramsey’s system is not designed to be used by me. I have a handle on our finances. His system is the life buoy thrown from the coast guard ship to the people on the sinking vessel who don’t know how to get out of their situation. I buy that.

And I am also not arguing against the point that his system gets people out of debt. It does. But, like any system, it has flaws and could be improved. I have three major beefs with his system.

First, Dave wants you to pay off all of your debt with the debt snowball. For those that are not familiar this is where he tells you to pay the minimum payments on all of your debt, and any extra money you earn or find gets applied to the debt with the lowest balance first. He claims that finance is 80% psychology, 20% money or something like that. Paying off a few small bills give you a psychological boost to tackle the big debt.

While that may be true, it is mathematically flawed and ends up costing you money. A simple example: you have two credit cards with balances of $1,000 and 3,000. Card A ($1,000) has an interest rate of 9.99% and Card B ($3,000) has an interest 23%. Dave wants me to keep paying 23% interest while I knock out the first card. That makes absolutely no sense and is costing me money along the way.

My second beef with Ramsey is that he wants you to do steps 5 and 6 before step 7. This isn’t a major concern of mine, but I don’t think children’s education should come before retirement. For some people, saving 15% will set them up for life when they retire. For others, not so much. You can’t borrow for your retirement. You can borrow for your kid’s education. Remember that.

The third concern I have with Ramsey is his anti-credit card stance. This is my largest issue with the Dave Ramsey system.

I understand that there are people out there in the world that simply cannot manage a credit card safely. For those folks, I have no problem saying you should use cash and debit cards for the rest of your life.

However, I don’t understand why Dave’s system starts with getting out of debt and stopping the use of credit, and ends with building wealth… but continues the theme of not using credit. If his system was there to truly rehabilitate people, he would train them how to safely use credit.

This may seem minor to some people. So you’re missing out on $400 of free money per year. Big whoop, I can deal with that. But there are many extra benefits to using credit cards and if the person following his system is truly following it to a T, then it applies just as well to credit cards as it does to cash and debit cards.

The bottom line for me is just because I have a credit card, I don’t have to use it to buy things on credit. Technically, yes, I do. But I have the money sitting in my bank account waiting to pay the bill. So use your credit card like a debit card or a wad of cash. It’s all the same. It’s a representation of money. Again, I’m not saying every person on his plan could handle it. Obviously many can’t in our country. However, I think one of the final steps should be to reintroduce people to credit in a safe manner.

There are so many benefits to credit cards it just seems silly. I’ve talked about them in the past. It helps automate our finances. I pay most of our normal bills with the credit card (electronically), and pay one bill to the credit card company (electronically) at the end of the month. I’m not sending ten envelopes with checks to various companies, trying to time them correctly so I don’t overdraw my checking account. I get security when I travel or buy things online. If my card is stolen, no big deal. American Express steps up to the plate and takes care of me. If I’m on my honeymoon in Mexico and someone steals all of my cash… well, that’s a different story.

Dave Ramsey is a Great Guy

Let me finish by saying I like Dave Ramsey. He’s a Christian influence in the personal finance world. He’s a huge Tennessee Vols fan. We have a lot in common. But I do think that his system — like any system! — has it’s flaws.

What do you think? Is Ramsey a nut case, financial genius, or something in between?

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Ashley @ Wide Open Wallet July 1, 2008 at 10:12 am

I like his snowball method and think the benefits outweigh the poor math. The highest interest rate I have is on my mortgage (5.75%). I certainly don’t think I should try to pay off my mortgage before I pay extra on my cars. I would much rather pay off my cars asap to improve my cash flow.

of course, you have to do look at the situation as a whole, if you have a balance of $5,000 at 24% and a balance of $4,500 at 8% I think it’s pretty clear you should pay the larger balance first.

Michael Smith July 1, 2008 at 11:54 am

As far as the cashback incentives coming from people who are paying 24% interest on their outstanding balance: I use Discover card for most purchases and would gladly give up my 3-5% cashback incentive if it meant that everyone was managing their credit well. (I’m sure Kevin would agree since this blog exists to help people manage their finances better.) But everyone is not managing their credit well, so I would prefer to use a card where some of that extra interest goes back to cardholders instead of all of it padding the corporate bottom line.

Kim November 20, 2013 at 8:56 am

@ Michael Smith…. I think you are misinfomed where your “cash back” incentives are being paid from. Those come directly out of the businesses that you use your card AT not from the unfortunate souls that pay the high rates. So the little mom and pop place ….everytime you use your card and get your check at the end…. they are paying for…. and the card that you use with the incentive verses the one that doesnt have the incentives…. the mom and pop place pays a different “fee” for.

I know…I own a mom and pop shop and pay that bill every month. 🙂

Kevin July 1, 2008 at 1:21 pm

@Ashley: I guess that is kind of my point. His system says “you must do this” rather than “think smart and make a good decision.” Granted, some people seem incapable of that…

@Michael: I want my cash back. 🙂 Show me the day that no one pays any interest to any credit card company and I’ll show you utopia. But! His point of 5% versus charging the vendor 3% and other “poor victims” paying the other 2% is incorrect as well.

For starters, the first $6,500 of my purchases earn 1.5% and 0.5% of cash back depending on the purchase. Those fees could come straight from the vendor I purchase my goods from and still leave money left over to start paying me when I reach the 5%/1.5% mark.

Secondly, once I hit that 5%/1.5% cash back mark, only gas, groceries, and drug store purchases are 5%. So there are a limited number of transactions that require “other victims” to finance the extra 2%. On top of that, every other purchase I make is only earning 1.5% cash back. If AMEX charged the vendor 3%, then that’s 1.5% that can be applied toward my 5% cash back.

Jeff July 1, 2008 at 8:44 pm

I can agree with your 3rd issue. There is a time and place for using credit cards. The tool is not evil, using it poorly makes it seem that way.
Your 2nd issue is really a matter of priority. I think his step 4 is building retirement at a respectable pace and step 7 takes care of the rest. Step 5 builds your kids’ futures for them, and step 6 allows step 7 to move ahead quickly.

But I have to disagree with your beef with the debt snowball being a bad thing. It looks to me like you – a person in control of spending and debt – are not willing to accept that there is more to paying down debt that pure mathematics. Humans are creatures with emotion. Sometimes we need motivation. Another flaw in your thinking is that the folks that are buried in debt are obviously not comfortable with the pure math. They wouldn’t be in the predicament that they fell into if they understood that a $2000 TV costs $6000 after paying minimum payments for years.

Getting someone to change a major facet of their life requires some small wins to keep them in the longer game. The debt snowball gives them the chance at making those wins.

Kevin July 1, 2008 at 9:20 pm

@Jeff: Thanks for commenting! I see what you are saying about 4-7. I can buy that, fair enough.

On the debt snowball, I’m not saying that there isn’t some psychology involved in paying off debt. But what if you’re in the situation Ashley described? $4,500 @ 8% and $5,000 at 24%? That seems pretty cut and dry to me — pay off the $5,000 first.

I guess I just don’t like how he draws a line in the sand. Either way, as long as people are paying off debt we’re making progress, right?

Tom March 30, 2014 at 2:12 pm

I’m a huge fan of Dave and have questioned him at times but only to be rebuked. You are splitting hairs here folks. The fact is that Dave always recommends that when 2 debts are similar in balances, pay the higher interest rate first. The math mind doesn’t want to let go of his reasoning that the math doesn’t make sense. Who cares, it doesn’t to you and the vast majority of people will always feel that way. And those same people may never reach their full potential until they get past that. It’s part of what Dave teaches, you will never look at money the same and you will learn how to better interact with money,

And, as to your point that he should end with a re-introduction to credit and safe use of credit….. AHHHHHHHHH!!!!!! NOOOOOOOOOOOOO!!!!! Do not listen to that advice. The diligent prosper and the borrower is slave to the lender….PERIOD.
Debt is dumb, cash is king. PERIOD. The only way to true financial peace is tyo walk daily with the Prince of Peace, Christ Jesus. Period.

If you have the cash then spend the cash, why a credit card?? Not a millionaire was made from points or cash back. Use the fundraising gift card system known as shopwithscrip.com but only if you have a BUDGET and stick with it.

JoeTaxpayer March 30, 2014 at 2:27 pm

No one has gotten rich from cash back. Agreed. After 15 years, my cash back card has funded my daughter’s 529 account to a balance of $21,000. By the time she’s in college, I’m betting it will pay for a full semester. Rich? No. But since many people don’t have even that much in their retirement accounts, this is nothing to walk away from.
I treat the card as a convenience, and spend what I have cash for to pay in full when the bill comes. I hit my number at age 50, and it wasn’t cards that did it for me, it was a savings rate of nearly 25% of our combined income. My analogy is to compare debt to alcoholism. The alcoholic should never take another drink, and the debt prisoner should never use cards again.
People are killed with knives. I’ve never needed more than a BandAid for a cut in the kitchen. People drink and drive. More than one drink, and my wife gets my keys. Debt is not evil and your biblical quotes don’t make it so. There’s a time and a place for debt, but like anything, it can be used for good or mis-used.
The David offers 2 ways, his way or the highway. He is more showman than financial expert. And his hubris is not that of a man of God.

Christine July 1, 2008 at 9:53 pm

I am a Dave Ramsey fan. I do agree with your opinion though. I think the reason why he “drew a line in the sand” is because there are people out there that are so over their heads… they just don’t know where to begin as far as paying off debt goes.

Its a great plan but I do agree with the logic of paying off the credit card with the higher interest rate first.

Vinayak Kulkarni July 2, 2008 at 5:52 am

Here is what I think you are missing the whole point of of DR’s process:

1. First, Dave wants you to pay off all of your debt with the debt snowball…. “Dave wants me to keep paying 23% interest while I knock out the first card. That makes absolutely no sense and is costing me money along the way.”

If you {any credit card borrower} were so math savvy you would not be borrowing on 9% or 23% interest in the first place. I believe this process is designed just to be a moral booster instead of saving money, which you already understood and quoted.

2. My second beef with Ramsey is that he wants you to do steps 5 and 6 before step 7

May be you are exception or part of a minority, may be you retire first before your kids go to college. But generally what I have seen (including myself, my friends and my neighborhood) people have their first kid when they are less than 30 years of age, so its quite logical to prioritize college funding first before planning for retirement. I agree with your point that you cannot borrow for retirement but you can for education. Heck going with the same thinking – why not settle for you kids flipping burger their whole life instead of saving for their expensive college education or putting your kids under debt when they have no income or no potential to earn any income.

I am not sure of you or others in general, but one of my goals in life is to see my kids get all the things in life that I couldn’t get or enjoy during my life time { be like those fancy shoes that my dad couldn’t afford when I was in school or the car I just wished I could have had during college but couldn’t afford or the medical school I couldn’t attend because I couldn’t afford }

Same principles for number 6 before 7 – he preaches a 15 year fixed mortgage which usually gets paid off well before you retire. So why wouldn’t you be happy with a paid off house that you could very well use as a money source during retirement?

The way I see this is – plan to shoo off your kids to college with enough money so that they won’t come back to your home and you live happily in a fully paid off home 🙂

3. The third concern I have with Ramsey is his anti-credit card stance. This is my largest issue with the Dave Ramsey system.

I am surprised why this is so difficult to understand. How is this different from the title of your website, may I quote “nodebtplan” ? Please remember this system is not for sane people who are able to manage their debt sincerely. Think of DR as the meeting organizer of your local AA chapter. For people who recognize themselves as Alcoholics “drinking in moderation” is not a solution. Being a teetotaler is the only answer.

These credit card companies of today are no different then the Marlboros of 1930s. Once you are sucked into revolving credit for many its very difficult to come out – The only solution is to pay them off and quit using them to avoid a relapse.

Your point of earning points/cash back is well and good only until you miss a payment; miss one payment and you are off begging to the credit card company to excuse you for being late {else all your 0% offers are due in full immediately}.

I am not denying that there is a potential to earn money off of credit cards and credit card offers { for dare devil examples go to the finance section of fatwallet.com and search for AOR } All it takes is one missed payment to crash your whole earnings plan. But this is like playing the casinos – the house always wins, may be you won’t lose with your hi-tech bill payment and sms account alerts but there are a large number of average people suckered into it.

There are some finer points of Credit cards like payment protection, charge back abilities, fraud liabilities protection which when used prudently will help you.

For the record:
* I am no way related to DR and don’t work for him in anyway.
* I have one credit card from each type {A/V/M/D}
* Don’t use cash or debitcard {except for cash withdrawal}
* Charge everything to my credit card.
* Earn cash back
* Charitable giving are more than than cash back earnings. So no guilt.

My passion for Dave Ramsey’s style stems from the success of his program, the joy of people getting out of debt and the proof from the radio and TV shows that his plan works so well.

Do something that touches and improves other people’s lives and prove that you can do it better than DR’s plan and may be then you have earned a right to call him wrong.

Debt Free Earth July 2, 2008 at 6:57 am

I follow Dave Ramsey on the radio and on Fox Business and admire his work. While his math may not be perfect, it’s the “instant gratification” of paying off the first debt that keeps people going. In addition, once the priciple gets paid in large chunks, the difference in interest becomes considerably less anyway.

Like you however, I disagree with his baby steps and the order of them. I do agree with paying off debt, including the mortgage, as soon as possible before anything else. The amount of wealth that can be accumulated in a short time is staggering if you have no debt. Saving up for a kids college education won’t take long, if you are debt free (they should be helping to contribute too). And the 6-month emergency fund that might take 3-4 years to stockpile only takes 6 months when you are debt free. What if an emergency happens? Charge it, but work it back into your “debt snowball”. At this point, if the system is being worked properly, a person has the education and discipline to do this properly. In addition, the debt snowball is a built in emergency fund as it grows. If something happens, you might not be able to pay back debt that month, but can pay cash with that month’s snowball payment for that emergency.

As far as the regular credit card usage to get cash back, the problem is most people spend more when using credit cards (or even a debit card) because they don’t “feel the pain” that they would by using cash. Think about it, if someone wanted a new TV, would they walk into Best Buy with $1000 in cash to get that nice new Hi-def version? Probably not. They would think long and hard about it and either settle for a less pricey model or not buy it at all. But with a credit card, they can just swipe and go. Even on a smaller scale, people make these decisions every day. Can discipline be exercised? Of course, but the credit card companies are counting that it is not. And usually they are right.

Kevin July 2, 2008 at 10:12 am

@Vinayak: We are on separate sides of the fence. You can say you are surprised why I don’t seem to be “getting it”, but I can say the exact same thing to you. Why don’t you “get it”? 🙂 You even admit you are an avid credit card user, so you obviously get it, but don’t seem to think other people that have been in debt before could ever understand how it works safely.

Yes, Ramsey is like the AA group leader. But he teaches people to fear credit. I don’t think teaching fear is the way to go. His system obviously works and he has pulled many people out from the debt pit. But at the same time, once they are out of debt, I think he should **extend** the plan to show them how to use credit responsibly.

It’s like saying going 80% of the way is “good enough” when you are leaving people open to frustration (try flying or renting a car with a debit card — yes, it can be done, but yes it is annoying compared to using a credit card), fraud (can I borrow your debit card and pin number, please? Or just your wallet full of cash?), and missing out on some free money (the rewards we have discussed).

So why go 80% of the way, when you could go all the way? Because it sells more books and brings in more devout followers? Ramsey isn’t known as the guy who teaches you how to responsibly spend and save money in our society. He’s the anti-credit, anti-debt guy. A slight change, but significant in my eyes. You don’t get to hear the stories of people who have had all of their money stolen due to fraud/burglary, or who have tried Ramsey’s system and it doesn’t work for them. Then again, if I was making millions off of my book program, I might not let others share that either.

Granted, I’m looking at this from the eyes of someone who manages and uses credit safely and always has. I’m not getting calls from collection agencies. I’m not under that stress. Yes, some people need a drastic change in their lives. But I’d like to think there is a light at the end of the tunnel where having a mortgage and using a credit card are acceptable and safe.

For those that are pitching the 15 year mortgage, I’d rather have a 30 year and plan to pay it off early. The payments are automatically higher on a 15 year, which might put you under more stress.

And a final note, last time I checked in the United States I didn’t have to “earn” my “right” to say someone was wrong. It’s called an opinion. And I’m sticking to it. 🙂

James April 28, 2016 at 1:55 pm

Kevin, I got Dave’s book out of the library for free and used his plan. We paid off all of my debt (student loans, credit card, cars) totaling $25 in 16 months. That was nine years ago. We have been debt free (minus mortgage which will be paid off next year) ever since. We use a credit card but it’s paid within 24 hours. That’s the rule we use when we use them. We budget each month and the program works. I don’t understand how people can say it doesn’t work for them. It’s basic math. I understand setbacks but if you stick to the plan and discipline yourself you will win. I am living proof. AND, yes Dave sells books. People act as though he is criminal for selling a product. You wouldn’t say the owner of a gas station is criminal for selling gas would you? His radio show is free. His website is free. His books are free if you get them from the library. We didn’t pay Dave anything to use his plan.

Livingalmostlarge July 2, 2008 at 11:28 am

15 year mortgages are dumb. You should always get a 30 year mortgage and just pay it like a 15. When in trouble you can back up to the 30 year payment. NOT so with a 15 year. Until you own the house in full you don’t own it, the bank does.

So, prepaying a house is dumb. Don’t prepay the house, if you want to stick it into a money market savings account. Then pay it in full 100%. Again if anything happens like Ashley’s husband dies (god forbid), she owns 50% of the house, gee too bad if she only has her 6 month EF. They’ll boot her when the money runs out and if she can’t afford the house?? Oh well. You don’t own your house till you own it 100%. It can be taken away.

Third, dave ramsey preaches fear. Fear credit. Gotta agree because most of the people following him are so in over their heads that they wouldn’t have gotten there if they had a drop of common sense. But they don’t, so they should never use credit.

Laura July 2, 2008 at 12:09 pm

Actually, Baby Step #4 is retirement. #7 is building up your wealth (in addition to retirement). This wealth can be used for Charitable Giving, for example.

John July 11, 2008 at 10:29 pm

I agree with DR that it’s a good idea to cut up the credit cards if you have been a slave to debt in the past. The analogy to “AA” is good. If you are a recovering alcoholic you shouldn’t keep a bottle of vodka in the house. Same for someone with an irresponsible spending past and having a nice new credit card with zero balance. They shouldn’t have a credit card.

But I agree that responsible people who never run a balance should use the free money offered from cash back cards. I used my personal credit card for a lot of business travel and paying regular monthly bills. In 3 years, I got over $2000 in free money from credit card rebates.

Other than the credit card issue and order of snowballing (you should pay the highest % first), I think his overall plan is good. More people than not will benefit.

JoeTaxpayer July 12, 2008 at 12:10 am

I think the note you got was on target.
You see, I agree with your approach 100%. Dave’s order is wrong for you and me, and anyone who is reasonably good with money. In fact, one can load up on available credit, and instead of having any emergency account, put all their money into their retirement account. When I had a true emergency, I was able to borrow from my 401(k) and pay it back over a year’s time. Same with the 0% CC offers, I’ve done them a few times to pocket nearly $3,000 total. My regular card gives me 2% back into a college (529) account.
But most people aren’t as sophisticated as you or me, and need Dave’s simple approach to get out of their mess. That’s too bad.

James April 28, 2016 at 1:58 pm

Oh man, “load up on available credit”? If you bank all of your money for 30 years, even with a low interest rate, you are paying ten of thousands in interest. That makes no sense at all. I’m glad Joe Taxpayer doesn’t have the reach Dave does. Our country would be in even worse shape than it is now.

Dave August 8, 2008 at 10:19 am

I may not be as “anti-credit card” as Dave Ramsey but I think you are probably better off in today’s day and age avoiding using them, simply because the credit card companies have become predatory over the last 10 to 15 years.

When my wife and I were first married (mid-80s), credit cards came from your local bank after you filled out an application and they reviewed and checked it (if you really had your act together, you may get an American Express card that required full payment each month). If you tried to charge something over your credit limit, they declined the charge, today they approve it and add a $39 over-the-limit “fee”. A day late paying? — $39 late “fee”.

Not to mention this whole concept of penalty interest rates and the recent example of Bank of America unilaterally raising rates on folks that *did* pay according to their agreement with the bank.

Credit cards are a financial tool, but using them improperly in today’s environment can cause you tremendous problems, much better off using debit cards – its paid immediately and you don’t have to think about it any more.

Kevin August 9, 2008 at 2:50 pm

@Dave: I agree to disagree.

Yes, there are fees if you misuse a credit card. However, it is all in the fine print. Read the fine print, don’t over-charge, and pay on time. End of all of the problems you mention. For overcharging, unless you’ve already misused credit in the past you shouldn’t have much of a problem getting a huge credit line — our current line on an AMEX is 50% of my base salary (not that we would ever use it).

The BoA is not indicative of all credit card companies, at least to my knowledge.

I’ve stated time and time again that credit cards trump debit cards in almost every situation. In most instances where you compare, the credit card can give more protection that debit cards. The only instance where it doesn’t is overspending. And that isn’t the credit card’s problem. That’s the person’s spending problem.

Sam August 13, 2008 at 1:15 am

I do agree that credit card per-se is evil and should be avoided. I believe its neither good nor evil. It all depends on how people use it.

As with Dave’s avoidance of credit card, you have check the kind of people he’s trying to help. Most of the people he dealt with have huge credit card debts. By trying to tell them to get rid of credit card, he’s probably helping them avoid stepping into their “old” temptation of bad credit card usage.

But I agree with you, maybe Dave can include in his steps how to use credit card effectively instead of avoiding them.

Fix My Personal Finance

The Happy Rock August 17, 2008 at 1:44 pm

I am not into arguing Dave’s right or he is wrong, I don’t really think it serves to much purpose and would rather see people put their energy to better use like destroying debt.

With that said, I think Dave Ramsey has a great plan. Personal finances are about behavior. His whole system is designed to change behavior and pave your financial future so that you can be free to use your money, energy, and time in positive ways. If you follow his advice to the letter, you will do well no questions asked. It works for the masses and is designed to reach the masses. The more radical you are the more your financial future changes. A couple of dollars in interest or credit card rewards even hundreds are insignificant in the big picture in my opinion. It is about changing your life and your mindset so that you don’t have worry about the little things and are free to focus or things that are much more important than money.

Can any system be 100% right when finances are personal? I think a plan can not be right 100% of the time and still achieve its goal 100% of the time.

Ginger August 17, 2008 at 7:37 pm

I think your views on Dave Ramsey are a bit short sighted. There are segments of our population who need not look at a credit card. Period. Why? Because they can’t handle the responsibility. They have lived their lives using credit cards for the most basic of necessities with little consideration as to how the bill will be paid off.

The overall benefits to his babysteps outweigh the math.

Also, who says that one must follow the baby steps in the order that he prescribes? If you can read and have an insightful approach to your finances and able to compute the math, you’ll be fine.

I think hte bottom line is this, we have to be responsible with what we promote and yes his math is wrong, but overall the guy has a really good system that’s gotten most people out of debt and I cant knock him for that.

Psychology is a big part of it so getting caught up in the math makes no sense to me.

Kevin August 17, 2008 at 7:42 pm

@The Happy Rock: Excellent point. Thanks for the comment.

I still think he should include safe credit card use if not for the cash back reward possibilities, but for the simple fact that they can be beneficial in certain situations.

Kevin August 17, 2008 at 9:28 pm

To your points:

1. Did I not write this at the beginning of the credit card section? “I understand that there are people out there in the world that simply cannot manage a credit card safely. For those folks, I have no problem saying you should use cash and debit cards for the rest of your life.”

So yes, there are people that simply shouldn’t use credit.

2. What if you followed the baby steps but adapted to the math? Then you get the benefit of both.

3. I also said at the end I like Ramsey. But like any plan, it does have its flaws.

4. Okay. The psychology dart people throw. I love it. If it’s all about the psychology… then why not look at it like you would a victim of some other crime? If someone is deathly afraid of credit, why not rectify that? It’s like not letting an alcoholic go to AA meetings.

Why leave folks afraid of credit when it has it’s place in the world? Why not make the last step “re-learning how to safely use credit”?

In that vein, I think Ramsey’s plan is short sighted. Credit isn’t going anywhere. It isn’t evil. Misusing is the person’s fault. Let’s train them how to use it.

Seriously, does Ramsey think everyone can pay cash for their next home? No? Then they’re going to use credit at some point. Even using a credit card for $100 per month and paying it off each month would help build their credit profile.

I agree to disagree.

Ginger August 17, 2008 at 9:37 pm

I never said the plan was perfect, but I think posts like these only serve to sway others looking for something that may actually work for them in the wrong direction.

Yes, credit is evil to those who cannot manage it and thus Ramsey does not recommend usage for anyone who isnt able to manage or handle the responsibility.

There are people such as NCN who do NOT use credit and live just fine. So there are actually people who live off the credit grid and are just as OK. I dont have a preference for either but I think your post was shirt sighted in this aspect.

And what psychology dart do you speak of? Did you not understand what I wrote do you felt the need to throw that in there? If you dont understand it, say that but what is there to love when you lackk understanding of this aspect?

I know many people who paid cash for their homes. If Jonathan from Mymoneyblog didnt live in CA, the he could have bought 1-4 homes depending if he lived in a lower cost of living area.

You dont have to go point by point, you don’t know it all lol I am making comments based on my understandings and observations on your post, please spare me the attitude in your response, I don’t need it. It wouldnt kill you to tone the base in your response, just a little bit.

Please and thank you.

Pete August 20, 2008 at 12:28 pm

Couple of points, you talked about saving for kids college coming before retirement. Actually in Ramsey’s plan you do retirement first, and then for kids college. So your retirement DOES come first. The step seven is just building more wealth and giving to others – not necessarily saving for retirement.

As far as the debt snowball part, i understand how the math isn’t always 100% the best, but even Ramsey himself says exactly that. But a lot of personal finance is about psychology, and what way is the most effective at getting you out of debt, and keeping you out of debt. The debt snowball is a great way to do that because it takes into account the emotional part of debt reduction. Again, as the happy rock said above, personal finance IS personal, so if you have two debts, one larger with a higher interest, you may want to pay that off first. It is your personal choice. It just happens though that a lot of people have more success using the debt snowball because the cumulative effects of paying of a bunch of small debts in succession keep them motivated to keep going and pay off the rest.

I had an audio post from dave ramsey’s show recently talking about why the debt snoball works HERE

As far as credit cards and responsible use there-of – i think it is possible for some people to have and use credit responsibly, and others should cut up their cards and never get another one. The people that Ramsey’s program is geared towards probably should not be using credit – and I think his leaving responsible use of credit out of the program is a wise idea. Kind of like teaching an alcoholic responsible ways of drinking 😉

For me I keep one rewards credit card that I use rarely, and ALWAYS pay off right away. For other stuff we keep an emergency fund and 3-6 months of expense.

Great post to get the discussion going!

Deb August 21, 2008 at 3:51 pm

The problem with no credit card in your name is that if your car dies and you have to get to work without public transportation you cannot rent a car from anybody so you lose a day’s work. Not a good option. The other issue, which won’t apply to everyone, is distant child or parents get sick or die and you can’t buy an airline ticket quickly to rush to the bedside. Cash is nice to have on hand to cover it when you get back but you need the ticket today.

We agreed to pay for private high school but it was clear to the children that it meant they paid for college; and they did and all except the youngest (who just graduated) are free of college debt (and he will be very soon).

Excellent topic even if I have no clue who Dave Ramsey is; but it seems I disagree with his sticking points. Oh well.

Kevin August 21, 2008 at 8:18 pm

@Deb: Thanks for the comment. I completely agree. I used to work for a rental car company. Credit card… much easier.

@Pete: You are right. It is personal and people can make their own choices.

I don’t buy the psychology bit. Well, I buy part of it — people do things they know they shouldn’t. But I think if he is going to claim psychology as a defense for his incorrect math, then I think it should be used to properly correct behavior and teach people how to use credit (rather than fear it).

Pete August 21, 2008 at 11:37 pm

I wouldn’t have bought the part about the psychology of it either if i hadn’t witnessed it first hand in our financial peace university class. Using the debt snowball people who had never been able to get out of debt before (and who DID understand that it is mathematically better to pay the highest interest first) were finally able to make a dent in their debt, and during the class (6 couples) the group paid off a combined 50,000 in 3 months.

The debt snowball works – but like dave ramsey said in the audio clip on my site – “you can’t go wrong getting out of debt”. So however you want to do it – go for it!

Again as far as the credit – i don’t think he includes anything about that because it’s a slippery slope to begin teaching about the “proper use of credit” when most of the people he’s teaching to probably shouldn’t be using credit. His whole philosophy is to get away from the place where you NEED to use credit. I don’t think it’d be particularly helpful for him to be teaching about that.

Mr. NtJS August 29, 2008 at 6:21 am


First, I want to thank you for not going totally negative here as so many like to when it comes to Ramsey. He does have a fabulous system that has help an unbelievable amount of people. We should be so luck as to have that kind of positive impact.

Now on your sticking points:
1. the debt snowball. No offense, but its usually the people who haven’t been through the plan that discount the psychological wins of his ‘smallest to largest’ snowball. As he points out, over and over, this method is preferred because, in his experience of teaching and financial counseling for nearly two decades, people actually stick with it. At this point it’s not about math. 80% behavior, 20% head knowledge. If card B were a $10,000 balance, would you still put it before card A? I doubt it. Besides, if interest rate is your hang up, then surf the balance. Even Dave will tell you to do that! Just don’t pretend that you’ve made some big accomplishment – the debt is still there.

2. You seem to be confused here, because it’s step 4 when you take care of retirement. Once again, Dave will agree that college funding should not come before retirement, because kids can work there way through college. Other than that, putting 7 before 5&6 makes no sense. You would build up a bunch of wealth and investments before starting a college fund or paying off your house? Besides, college funding isn’t forever, and once done, you can kick more into retirement if you’d like.

3. I hate to tell you this, but Dave’s target audience is all of America, not some lower-class people as some seem to be suggesting. There are people using his program that make $200k per year. Doctors, engineers, pharmacists. Just the same as there are single moms making $20k per year. Paying off a card does not make you elite. The Mrs. carried a card for 8 years, and never once carried a balance on it. Yet she put it in the shredder just the same. Why? Well, why do business someone you don’t trust? It’s like mail-in-rebates. Sure, maybe you’ve always gotten yours back and you think they are just fine. I bought a $70 router for $7 once. I waited 6 weeks for the first check of $30, and another 4-6 weeks for the other check. But we’ve also been burned big-time by rebates that never came through. It’s a system and a game that you are not intended to win. Just like credit cards. you aren’t intended to win that game either, and even if you follow all the rules and be ‘responsible’, they can still change the rules mid-game. Move your billing date up. Misplace your payment. Do whatever they want. As a matter of principle, why do business with a company that you don’t respect and is out to get you?

I would challenge you, as I have others, to dive a bit deeper than some topical info on Dave’s website. Listen to his podcast for a week, a month. You’ll find he’s more on -target than you think.

Oh,and BTW – do you really think that Dave – or anyone else for that matter – can’t get a rental car when traveling because of not having a credit card? Please. Only, two companies won’t take debit and they are too expensive anyways. Non-issue.

Kevin August 29, 2008 at 7:15 am

Not the Jet Set: Thanks for commenting. To your points:

1. I don’t buy the psychological argument. Again, I’m not saying his system hasn’t worked — not at all. I’m saying it could be better. And if he wants take the psychological argument then he should also accept that if his audience can’t handle credit… teaching them to fear it isn’t the best psychological move is it? At the end of the day if you can use a debit card you can use a credit card. But the fear teaching of his program doesn’t work for me. Why not continue to use the psychology to help the “victims” of credit?

And if the other card had $10,000 I would still go after the high interest card. As I pay the card down, I’m saving money compared over the other card, plus my interest payments for that card are going down.

2. I’ll give you that point.

3. You can’t make a blanket statement that all credit card companies are going to change the rules on you. Perhaps some will, especially the bad ones, but I’ve had credit cards for many years and never experienced anything you mention here. Again, I’m not saying it doesn’t happen. But I also don’t believe it always happens. There’s a difference there. It’s also really hard to misplace your payment when it is done electronically. Even if that happens, it takes one call to customer service for me to fix just about any issue.

Again this goes back to the psychology issue. Don’t do business with a company you don’t respect and is out to get you. That’s fear. Ramsey is teaching you to fear the company rather than to stand up for yourself as a customer.

4. You assume I haven’t listened to his podcast. I did, for about a month, at work. I was saddened by the stories of people who called in. And Ramsey really knew his stuff on things I was ignorant on — the particulars of bankruptcy or odd real estate deals for example. So he is definitely intelligent. But other than those calls, I heard primarily this: “I’m in debt with $X owed here and $X owed there.” Ramsey’s response is always to get their income, tell them to cut their spending and start paying off the debt. Okay, that works (other than the details we’ve discussed). But the show was very repetitive and kind of boring after a while. 🙂

5. I can pretty much guarantee you — because I used to work for the world’s largest rental car company — that if John Doe walks in with cash, is it going to be very difficult for him to get a rental car.

“But he also says debit cards are okay” — ah, but he’s also all about cash, too. Right? If you went Ramsey crazy and just used cash it would near impossible to get a rental car — unless you put down a large amount of cushion money.

“So just use a debit card.” Okay — if you use your credit card like a debit card, what’s the difference? You get to hold onto your money now? Thieves can’t empty your bank account? If you use a debit card they are going to take the cost of the rental plus (normally) a $150 to $200 deposit. More of your money out of the account.

That is my point. If you wrote debit card on your credit card and used it like a debit card there would be no negative difference, only a positive difference. And Ramsey’s fans usually don’t see that because they’ve been taught to fear credit. And that’s what I disagree with.

NtJS August 29, 2008 at 5:31 pm

Wow. So you’ve listened to his show, but you just aren’t hearing him.

1. It’s good that you don’t buy into fear teaching, because Dave does not teach fear. It just isn’t there. I’m not sure where that is coming from. I’ve read his books. Listened to his show. Even taught his class. It’s just not there. It’s empowerment. It’s taking control and not letting credit cards, and collectors, credit scores rule your life. There is a big difference there.

Once again, you discount the psychological, but you have not done it. Right? Having done this, I can tell you that starting out trying to knockout a $10k debt first, when the snowball (payment) is smallest, would have felt near insurmountable.

2. This is where I assumed you hadn’t listened to Dave. Lots of bloggers like to grab a couple tidbits here and there and think that they know all about him and his plan.

3. No, I can’t say all credit card companies are going to abuse their customers as some have quite notably done. But can you say which ones won’t? How about which ones will? Get out your crystal ball… Here is the blanket statement that I can tell you. They all have the right to. “….all terms subject to change at any time, for any reason, without prior notification….” This industry is constantly moving, and the cardholder agreement allows for it. Universal default, double-cycle billing, moving due dates, jacking interest rates, rewards falling off before you can use them. What’s next? They could take away the grace period and start charging interest immediately if they wanted to.

“Don’t do business with a company you don’t respect and is out to get you.” That is not fear. But it is not fear. It’s power. It’s taking control of my financial destiny and not letting it hinge on the whims of a credit card company.

4. The depth of his financial knowledge is rather mind blowing at times. Again, a lot is, fortunately or unfortunately, from experience. And while the show can get repetitive at times, I find that I am constantly learning things from him and his callers. The repetition tells you how large some of these problems are in our country. One thing I hear repeated a lot is how credit card companies and their collections abuse customers and break federal law. Once again – this is *not* teaching fear. If Dave were teaching fear, he would be saying, ” yeah, the collector is right. They are going to come and get you and throw you in jail and your kids will go into foster care! you better pay him first.” Quite the contrary. He specifically teaches NOT to make decisions based on fear, as well as giving people the psychological boost and the financial tools to get out of debt and get the scum bags out of their lives. Empowerment.

5. Well, yeah, it probably is difficult renting a car with cash. I do know a couple that will do it, and no, they aren’t the biggest ones out there. But I’m not sure who is suggesting doing that. Dave isn’t. I’m not. Once again, I don’t think you’re grasping his message.

6. No, there IS a difference between credit and debit no matter how you use them. Risk. Oft negated, ever present. When I pay with debit, it’s done. Paid. When you pay with credit, it’s not done. You then, sometime in the future, have to pay the credit card bill. And a lot can happen between now and then. Unnecessary, unneeded risk. And they can’t pay me off with rewards to forget about the risk.

Anitraclark September 3, 2008 at 6:56 pm

I am a Dave fan so I have nothing to say other than Go Dave!

great blog!

Kevin September 3, 2008 at 10:27 pm

Loving this discussion 🙂

1. It is a form of fear. Empowerment of the fear of credit cards. The “I shouldn’t use credit because if I do then I will be back in debt again because I don’t know how to use credit”. That’s fear to me. It isn’t Ramsey running around with a Scream mask on with a knife kind of fear. It is subtle. I think we can just agree to disagree here.

3. Re: credit card companies — then do you research and find a good one. In one of my first posts ever (“Credit cards are not evil”) I liken credit cards to guns. They are a tool. A potentially dangerous tool like a gun or an axe. Both can be useful. Both can be deadly. Learning how to use them is my preferred method. (Let me point out I am deathly afraid of guns and don’t own one, so I’m not saying there isn’t a choice involved… but that’s getting off of the analogy.)

4. I agree on the collections part, but collections agencies are not credit card companies. If you don’t pay your debt, it gets bought by a collections agency. That’s pretty much how it works. You don’t pay the debt, they have every right to try and get payment (within the law of course). The credit card companies, at least to my knowledge, can’t control the collections agencies. People shouldn’t let their accounts go to collections in the first place, but I suppose that is a moot point.

6. What unnecessary, unneeded risk?

1. get credit card with reasonable limit
2. setup automatic direct payment
3. buy stuff, deduct from your check book/budget spreadsheet as you would with a debit card or cash
4. bill is automatically paid, no interest earned

I suppose the “risk” is suddenly you have a need for that money sitting in the account — or perceive a need, or heck just spend it anyways — but that is a self control issue or emergency fund issue. I spend $100 on credit. I line up a $100 payment online (automatically). What is the risk? That the payment won’t go through? Call customer service.

Let me point out that if you are in debt, especially credit card debt, then you shouldn’t be using the same credit card that you hold debt on. That’s just silly, because then you’re paying interest on the whole balance. I can see why going to straight cash for that time period might be useful. My point is that there is a safe, reliable, rewarding way to use credit cards.

You think I don’t get Ramsey’s teachings and I think you don’t get that credit cards can be used just like debit cards. Fair enough. 🙂

NtJS September 5, 2008 at 12:50 pm

1. Empowerment of fear? That’s a new one. What you seem to be talking about is a healthy fear. There is a big difference between fear mongering and having a healthy fear. You want to liken credit cards to guns, ok. Both things that are reasonable to have a healthy fear of. So where is the problem?

3. This is awesome. We also have a post about why credit cards aren’t evil, but I’m betting that we took a little different approach to it than you did. My preferred method is not to do business with scum.

4. Absolutely false. Don’t think for a second that some of those collection agencies aren’t ‘first party’… because they are. Most, if not all of the major card issuers not only have their internal, branded collections departments, but also own outside collections companies under different names that they can hide behind while the immature idiots on the phones break federal law. Beyond all of that, owned or not, the fact that they do business with such scum says a lot about the companies.

6. What risk? Really. They guy who just likened credit cards to guns (and also illustrated a very on-topic, on-analogy fear of guns), is going to try to tell me that there are no risks involved. Really? Either your analogy stinks (I think it’s dead-on), you’re being facetious (possible), or you really, honestly believe that there are no risks (Hopefully not). Every sharpshooter (likely the best people in the world handling a gun) knows and understands every risk involved in handling, drawing and firing the weapon. If not, then they likely aren’t a sharpshooter for long. Sure, they can take every precaution to mitigate those risks, and it is possible to do – many are very good at it. All of those efforts are taxing to the individual, though. To take those risks for granted is a huge mistake, and can be absolutely devastating.

The risk here is life. It’s everything that can happen between now and payday. Charging up that card (within your means or not), and assuming that everything will be fine later is a multi-layered risk. It works great in the best-case scenario. Every cog in that machine to pay what once was a simple bill, is a risk. Now to compound that risk, is the number of cogs that are out of your control. The direct deposit paycheck being wrong or late, the auto-bill-pay system taking on a virus, the doufus at the store that charged you twice, the card issuer changing the rules midstream, the doufus CSR at the card company that claims to have fixed the problem, but doesn’t. This is not some perfect machine that always works without fail, and all of those things happen and more. Internet connections go down. Software has bugs, some associates are doufus’s, some CSRs are doufus’s, credit card companies have a very real interest in you NOT paying the bill. So establishing and engaging in this system is a better plan? No way.

I’m sure that if you worked really hard at it, you could use a credit card like a debit card. But why bother? That role has already been cast, and it’s called a debit card. Above you have steps 1-4 of hassle. All unnecessary and unneeded. Step 0: Pay with debit card or cash. DONE. There is no step 1, 2, 3, or 4. You can have your complicated way of paying for purchases, and I KNOW that you don’t get Ramsey.

LivingAlmostLarge September 8, 2008 at 11:42 am

I have issues with Dave Ramsey about his plan. But heck modify it.

First $1k isn’t going to cover a rent payment where I live, so the BEF needs to be larger. But that’s a point which should read “make it appropriate to situation”. If you have a mortgage of $2k, um, a $1k BEF is not going to work.

Second, debt payoff sure if it works for you great. Problem Kevin is these people are seriously bad with math. They have no idea how to balance a check book, etc. They are probably dealing with late fees, overdraft, etc. They need to keep it simple stupid or KISS. So it works.

Third, is lack of advice he gives post BS2. He should be saying that people need to save for car replacement, home repairs, etc. It’s not to come out of you FEFF. Why? Because when you really need the FEFF for death, disability, and loss of job, it won’t be there if you KEEP tapping it for every little “Emergency”. And that is a problem I see, people keep living with “emergencies” and never learn to get ahead. To get ahead you have to PLAN!

Fourth, 15% is enough if you are in your 20s or have a pension. It’s not enough if you are 30s or 40s and have 0 saved. So again stupid people follow this rule and they won’t have enough. Sigh.

Why sigh? There are no loans for retirement and ZERO should be saved for college ahead of retirement.

Also why would you not maximize retirement savings before paying off the mortgage? Unless you make $250k, 15% is not the maximum you can save.

So my other issue with Dave Ramsey is not maximizing retirement savings before paying off the mortgage. I don’t argue mortgage interest or the tax break, NOPE, my argument is you are saving 25% taxes on the income you stuff into a 401k! So that 25% outweighs your 6% mortgage.

So right there you have outearned your 6% mortgage, not counting the tax break which makes the interest rate on your mortgage actually 4.5%.

But if you aren’t maximizing your retirement accounts you are losing money on the math.

James April 28, 2016 at 2:09 pm

Once you have equity in your home your tax deduction goes down significantly.

Kimberly September 9, 2008 at 9:19 am

I completely agree with you on his anti-credit stance.

I don’t like using cash or debit cards, and I’ve earned well over a hundred dollars in cash back in the last couple of months. And yes, I pay it off every month.

I think Dave Ramsey should encourage people to modify his plans if it fits their own situation better, but then again I understand that people climbing out of debt should maybe avoid the credit cards.

Kevin September 14, 2008 at 10:01 pm

@NTJS: Sorry it’s been a while since I’ve responded. Been quite busy.

Again, to point 1: Healthy fear is not what I see from Ramsey. Every time someone calls into his show saying “I’ve never, even had a problem with credit cards” he berates them as he would a child and tells his listeners to never use credit. People use guns responsibly. People use credit cards responsibly. Ramsey says to never use credit.

4: agree to disagree. Wouldn’t be a problem if people used the cards correctly. You still have to pay. Ramsey has great tips for dealing with illegal methods, I’ll give him that.

6: You sound like the most risk averse person on the planet. You also make the credit card system sound like something that is held together by string and duct tape.

–the direct deposit could not go in: that’s why you don’t live paycheck to paycheck. You should have money in your account on the very rare instance that this occurs. I have recommended a one-month expense buffer in checking accounts in the past, essentially eliminating this risk. How many times have you experienced this? How long did you have to wait to get paid?

–the auto-billpay system gets a virus: please tell me this isn’t a serious argument. How many times have you even heard of this happening? If it is on the company’s side, a simple call to that CSR would fix any charges.

–the doufus at the store charges you twice: again, either call the store or call the card company. How is this different than using a debit card? With a debit card, it’s your actual money they are taking out of the account. Not so with credit.

–card issuer changes the rules midstream: what rules? When the payment is? If my due date ever changed, my automatic bill pay pays on the day the bill is due. If it moved, the payment would move.

–the CSR doesn’t fix things: document who you talk to, escalate the call, or call Executive Customer Service. There has to be a problem in the first place, and I think some of your issues are a bit of a stretch.

There is no work to using a credit card like a debit card. It works the same way if you have a budget. Swipe card. Go home, check to see charge went through. Deduct amount from budget category. Very simple.

Why? We’re beating a dead horse here. It is actually safer (when done correctly), plus added benefits of cash back and warranty extensions.

@Everyone else: Thanks for the comments!

NtJS September 15, 2008 at 3:14 pm

1. Not sure what show you are listening to. I’ve listened to his show a lot over the past 4 years – used to listen everyday. I’ve never heard him berate anyone or treat them like a child. That’s not his show. Dave is incredibly respectful. I also don’t hear people calling in to say “I’ve never, even had a problem with credit cards”. I just don’t. Anyone calling in just to say that is likely being passive aggressive anyways. Are you sure you are talking about the Dave Ramsey Show?

6. No. I’ve just seen and heard life happen a lot, and I don’t pretend that risk doesn’t exist. And it’s not that the credit card system is a cobbled together system. The system you have described is. You transferred all of the risk and work from the bank to you. You really have. Debit does all that for you. And just in an effort to get rewards (which you can now get with debit cards) and extended warranties (which Consumer Reports and every other reputable consumer advocate says are worthless).

Anyways, I’ve made my points. In the end, I really don’t care if you use a credit card. You’re going to do what you’re going to do, as will I. We don’t need to try to convince each other otherwise. What you are doing can be done. It is a slippery slope, it does involve added risk, and as statistics show, very few are effectively pulling it off.

enjoyed the debate

GHolmes September 17, 2008 at 3:56 pm

Enjoyed your article on attentive spending. Debt snowball worked for me. As I gained momentum I was able to negotiate my higher rate cards down. Took us only 18 months to get rid of 30k in debt. Have been 2+ years not using/owning a credit card and I do travel for business. Each PF guru has their own financial diet plan and if you choose to follow a particular diet stick to it. By sticking to it you will make it. Too bad Dave Ramsey is a Tennessee Vol Fan or he be all right!

Troy September 17, 2008 at 5:01 pm


Couldn’t agree with you more. There are very few people who get it. you are one of them.

RISK is what he discusses. That is the difference between CC and debit cards. Great job of pointing out the risks. Risk matters.

Kevin, if you are getting an MBA, which I have as well, then you are versed in risk assesment, or Beta.

Beta must be factored when assessing cost benefit. We could go into detail about this, or you can just take my following words.

Credit Cards exist for solely one reason. PROFIT. Not convienence, points, fraud protection, etc. Those are benefits, not purpose. The purpose is profit for the issuer. That means that a majority of users must result in a profit for the issuer, and a cost for the user.

Obviosly you already know this. that is why there are rewards and benefits, etc. It is redistribution. Most people pay, so a few can benefit, yet most thinnk they are or will be the ones who benefit, but of course the economic model will not support that.

CC are tools, just not for the user. they are tools for the issuer, and they are unnecessary. You can accomplish the exact same thing, with the same benifits, convienence, fraud protections with a debit card, so the only reason for CC is credit, and the incorrect assumption that using one is in your benefit because you can “beat” the system.

The issuer set up the system. It is their rules. Their money. their card with their name on it. They have the control, not you. They just let you think you do.

Love your site, by the way. I am all for no debt.

Kevin September 17, 2008 at 8:18 pm

@GHolmes: as I’ve said to the nay-sayers that comment on this post, I’m NOT saying Ramsey is a bad guy. His plan works. Many plans work. I just disagree with his credit stance.

I appreciate you willingness to disagree in a civil manner.

@NTJS: I really don’t understand what work I am doing on behalf of the bank. I’m setting up an automatic payment, once. The payment goes through. Phew. That was tough.

I track my spending just like I would with any other form of payment (cash, debit, or credit). Phew. Not extra work.

Show me a debit card that earns 1.5-5% cash back plus allows me to earn 3% interest on the money as it sits in my bank account for the rest of the statement month and I’ll show you that it’s a credit card.

About the warranties, the warranty extension that comes with American Express works. I’ve not had the privilege to use it yet (thank goodness), but I’ve talked with others that have used it. All it does is add an extra year to the manufacturer’s warranty. I’m sure you have to have documentation like a receipt or order form, but for any large purchase that I would want to make sure I had a warranty I would do this regardless.

I think it could include added risk if you don’t pay attention to what you’re doing. Again, I’ve said for the folks that can’t handle the heat, stay out of the kitchen. That’s fine.

Again, enjoyed the civil debate. 🙂

@Troy: I understand risk.

Obviously credit cards exist for profit. I don’t believe I’ve claimed they aren’t designed for profit for the issuer. The issuer is a business. It isn’t shocking that they are attempting to earn a profit. If they didn’t, they would be a 403b non-profit, right?

The assumption that is a cost to the user is incorrect. Primarily the cost is for the merchant. I’ve explained this on the blog in the past. I’ll actually write a post about this for tomorrow morning.

In regards to them being the same with debit cards in terms of benefits, convenience, and fraud protection… I also disagree with that. Benefits is generic, but the cash back programs I have seen for the limited number of debit cards that offer it aren’t near what credit offers. Also, I get to float my purchases in my checking or savings account until the end of the statement month and earn interest on that money. With a debit card the money is taken out immediately and I lose the ability to earn interest on that money.

For convenience, swiping the card is convenience regardless of debit/credit. I’ll give you that.

Fraud protection I have thankfully not had to use, but I have a friend whose debit card number was stolen. $3,000 was taken from his account and it took a couple of weeks to get the full amount of the money back. That’s a long time to go without $3,000. (This was with a large bank, too.) With a credit card if my card or number is stolen and fraudulent charges are put on it, I place one call and don’t pay anything until the investigation is over. Result? I keep my $3,000 until proven “guilty” if you will.

So no, I disagree. Debit is not equal to credit. I think debit is inferior to credit because of the fraud issue.

Troy September 17, 2008 at 11:26 pm


Of course there is a cost to the average user. The cost is interest. There must be a cost, or there would be no profit and CC would not exist.

Regarding your use of arbitrage, why stop the float at all. If you earn interest on the float and find benefit, why pay the balance off at all? Why not transfer the balance to another CC and continue this process in perpetuity?

See, I have heard virtually every reason why people use credit cards. Float, leverage, convienence, credit,rewards,points, protection, status, comfort, security, etc.

Every single reason except credit is flawed. It is a fact that the fraud protections for both major CC issuers are identical to that of their CC.

In addition, most major banks treat their debit cards with the same protections as their CC, so your reasoning of fraud is more of inconvience than protection. however, most are also more likely to catch fraud earlier with a debit card than a credit card.

Credit cards are debt. it maybe short term, it may be for just a few days, but it is still debt. Why would anyone go into debt for groceries,gas, etc if they have the money. It really makes no sense to me.

I have heard the argument for float several times. That argument matches yours in that you would rather earn interest on your money during the grace period. OK. First, that amount of interest is minimal. Second, as I stated earlier, if that is truly a reason, then the same principal applies to a perpetual float amongst several cards until the limit is maxed. Yet every proponent of Credit cards and the float says in the same sentence that they “pay their cards off every month”.

There are risks, and I know you understand them. Many people don’t, however. I know of no one that got into credit card debt on purpose. I know of no one whose aim was to bury themselves in debt. But it happens. Smart people get in CC debt every day. They think they can beat the system,and then life happens, as NTJS stated.

Risk from things that are out of your control, and risks from things that are. When you say NTJS must be the most risk averse person on the planet,I think you are missing his and my point. It is not that all of those things might happen,it is that one of those things will happen. It is one of those things has happened.

Rewards…they are carrots. I ask myself why are they so eager to give you rewards. We all know the answer.

Using a credit card is like gambling. A few people win, and those few create the illusion that more are likely to win, but most people don’t. Only the house consistently wins.

You maybe able to continue to “beat” the system but over 60% of the people who use cards don’t.

I enjoyed the debate,and I wish you luck with debt and with school

GHolmes September 18, 2008 at 11:16 am

The cost for these tricks the bank offers us do get past on to us the consumer. The merchant pays, yes but why dont you think it doesnt get past on to the consumer? You do pay for the convenience of the banks and so do I. The sign in the independently owned corner market read “no credit card or debit card purchases under $5.00”. Trickle down economics. Go BEAVS!

Chima September 18, 2008 at 10:22 pm

I enjoy Dave Ramsey’s radio program, and listening to the callers who call in to let him know they are debt-free continues to keep me focused and motivated on ridding myself of my debts. I do agree however that no system is perfect, and I’ve never had the feeling that Ramsey thinks his system is perfect either. He strikes me as a humble man who is out to help others out of their tough situations. As for his baby steps, I thinks the steps are fine, however I chose to build up MY emergency fund/6months of expenses ($12,000) all at once before going to Step 2. I’m on track to complete Step 1 on Feb 28th, 2009! The funny thing is that in mid-March of this year, my wife and I had exactly $132 in the savings account, and now we’re 4 months removed from hitting the unreal amount of $12,000!

FLNonny September 19, 2008 at 4:28 pm

Dave is statistally CORRECT. It is a proven fact that those who use a credit card spend 12%-18% MORE than if they had to pull out cash or a debit card. It’s precisely why McDonald’s put in their credit card machines after years of studying market spending.
Spending is more behavioral/psychological than anything else. More people spend out of desire and compulsion than need. We NEVER acquire debt because we don’t use credit (we paid off $18,000 this past year) and we now have just our small house pmt of $800 each month on a $94,000 one-person salary. There are some, like my 83-yr-old mother, who CAN use a credit card wisely; she has always paid hers off EACH month, but she will also tell you that she spends more than she would if she had to pull out the cash for each transaction. Since she is not short on cash (and she has not had debt since she was first married in 1955), she can “afford” to waste money. Most of us are NOT in that same situation and some of us (me included) no longer want to waste money. I’d rather take the excess and donate it to charitable causes we find important or save it for a future car for our future college student. In January 2009 we will be Dave Ramsey church facilitators and we already love the program. Dave has a proven track record. If you haven’t gone thru his class or read ALL his books, it’s easy to dismiss his program. Check your local library for his books/tapes; it’s free and easy (can’t beat that!).

Clair Schwan of Frugal Living Freedom September 21, 2008 at 3:24 pm

It seems that it doesn’t matter much whether anyone agrees or disagrees with Dave Ramsey. What matters is whether he can contribute “a gem” to our pool of knowledge, and cause us to think anew. Clearly, for many, his has done this.

We should be focused on gleaning techniques and ways of thinking from various sources to build what works for us as individuals. I have my own rules, and I don’t expect them to work for everyone.

Clearly we’re on common ground, but will never be exactly aligned. Nevertheless, we can all sit on the same side of the table and be happy about such good company.

Good blog, good discussion and good fortune to all,


Kevin September 22, 2008 at 8:57 am

@FLNonny: Then I must be the only person in the world who sticks to his budget and uses a credit card. I doubt it. In fact, other readers have posted saying they can use them well, too.

@Clair: Agreed; that’s why I’ve said I support most of his plan. The anti-credit stance is what I have beef with for the most part (and the paying lower interest first part).

@everyone else: Please re-read the post. I’m not saying Ramsey is a terrible person and his plan never works. I’m saying every plan out there can use some tweaking… it has flaws. That’s my point.

Todd September 24, 2008 at 4:31 pm

Okay, I haven’t taken the time to read all of the comments, but I thought I would leave my two-cents on this blog post. First off: THE ONLY WRONG WAY TO PAY OFF DEBT IS TO NOT PAY OFF DEBT.

A little background: 23 years-old, $100,000 student loan debt, $7,500 consumer debt, $7,500 debt to relative and just bought a house. The 8 total debts add up to $115K, $240K including mortgage. (I know, that all makes me sound hypocritical to my first note above.)

I recently read Dave Ramsey’s TMM book and must say that his plan–the snowball debt plan–is most appealing to me. I have 8 debt payments, including my mortgage, that are paying off debts with balances ranging from $750 to $67,000.

To make a long story short, I graduated with an engineering degree so I am all about the numbers. On top of that, I consider myself very productive with Excel. With that being said, I set up a very comprehensive spreadsheet equipped with macros that when executed: 1) created a list of permutations of the 8 debts–40,320 in all, 2) “plugged” in their current balance, interest rate, monthly payment, and “snowball” amount,
3) added up the entire amount of payments after debt = $0, and 4) sorted those total payment amounts for every permutation from least to greatest.

What I found was that difference between the least amount paid and the greatest amount paid was only $6,000 (compared to these totals of nearly $325,000)—so less than 2% difference.

If I were to pay off the loan with the largest interest rate (which happens to be the $67K student loan), then it would take nearly 5.5 years to pay off. However, if I knock some of those little consumer debts out of the way then I end up paying off 4 of them within 2.5 years. As always, the mathematical part of me tells me to do it “your way”, but the psychological part of me says to gain that debt reduction confidence and pay off those little debts—which is exactly what I am doing now. Note: once I obtain that “confidence” I fully intend to switch to the best mathematical solution.

Other than that I completely agree with your opinion of Ramsey. Specifically, I have thee rewards credit card that pays for utilities, select bills, gas, and sometime groceries WITH the money sitting in my account waiting to pay the credit card off when the statement arrives.

Thanks for the great blog post!

TMS September 30, 2008 at 10:39 am

@ Kevin, FLNONNY, Troy, and NTJS:

Looks like I may be a few days late with responding to these recent posts, but I am still going to contribute.

Big fan of Dave Ramsey…big fan of Kevin’s arguments….big fan of credit cards. Everyone is correct…

Last year I used credit cards for the “fixed” expenses (utilities, eligible student loans repayments, cable/cell phone, fuel, vehicle maintenance, — in other words, expenses that are impulse that have to be paid month-to-month) AND I used a debit card/cash for “impulse” expenses (groceries, clothes, retail, occasional dining out etc.).

I paid the credit card off each month, was charged a total of $0 in interest/fees/finance charges/etc; I earned $1500+ in credit card rewards but $0 in debit card rewards; that money is now making money for me in a Roth IRA and will be for at least 35 years (~$40,000?)

PLUS…. My brother no longer carries cash/debit cards because he was mugged a few years back, had $45 stolen and $1,200 spent before he could cancel the debit card (never got it back); on the other hand his credit cards were never harmed because he was able to stop payment and cancel the transaction(s). Which brings me to my next point: Why don’t store clerks ever check ID’s anymore?!?!

GHolmes September 30, 2008 at 2:27 pm

My math has you losing (1,500-2763.6) in purchasing power!

Lets assume you have 2% rewards card and never make a mistake in paying bills. For the 1,500 you would have charged $75,000 (1,500/.02).

Now lets assume you were my only customer and I was your only “source of goods” . My merchant fees average 3.29% of credit card sales. 75,000*.0329=2467.50. My cost of capital is 12%. Since I am not in business to break even I am marking up my goods. 2467.5*1.12=2,763.6.

TMS September 30, 2008 at 2:56 pm

I will be the first to admit I am not an expert in business, purchasing power, behind-the-scene credit card extraordinaire or anything like that, BUT when I receive an electric bill for $30, for instance, I am going to pay $30 regardless of what type of payment I use. I have never received a credit card statement that added on a few extra dollars to make up for my use of a credit card nor have I ever received a bill the following month that tacked on a fee for using.

The reality of it is I am not the only customer to any single business, I am not the only person using a credit card, and I have multiple sources of goods; I also understand your example above. With that being said, if I translate your example above correctly, then in reality when I use a debit card/cash without any reward benefits to purchase $75K then I would be losing more in purchasing power (0 – 2763.6) because I would being getting marked-up for that 12% despite not using a credit card. On top of that, I would have never received that $1,500 that was thrown into a Roth IRA to produce more money. [If you feel I have completely misunderstood this concept feel free to explain more or link me to a good website that does….you have sparked my curiosity!]

Also, I don’t mind saying its 3% card with a rewards benefit that gives back $1.25 per $1.00 after a certain amount of rewards has been built up.

GHolmes September 30, 2008 at 3:38 pm

You are so right that it is very confusing and easy to hide the true cost of that credit card. If you wrote a check to Visa for $2,763 to get $1,500 you would not do it. So it is hidden.

You get $1,500 from Visa (75,000*.02).
Merchants pay Visa $2,467.5 (75,000*.0329).
You pay Merchants 2,763 (2,467.5*12). So you are out .

Before rebate cards you could have bought 75,000 in goods now you can only buy 73,737 (75,000+1500-2763).

As the banks keep issuing credit to folks that cant pay the higher our fees will become. Visa passes the cost to the merchants who have to make a profit not just break even.

Sorry no website I dabbled in Economics while in college. I put the math out there for folks who are wiser can see if there is a flaw in the calculation.

GHolmes September 30, 2008 at 3:57 pm

As far as the utility bill 30. If you were the only customer the cost of to the company is only 98 cents. (30*.0329). I doubt they would raise thier rate.

However, as more of society uses credit cards/debit cards (by signing them) the more costs to the utility company it is going to be.

Watch the TV commercials and how they are marketing to our generation. Why is it so eay to get credit cards?

Because the bank made $967 on your 30 day loan so you could pay your fixed expenses.

Paul October 1, 2008 at 10:59 pm

Re: Credit Card Use,

I recently heard a clip of Dave arguing against the use of credit cards by saying something to the effect of “I don’t know any millionaires who use credit cards”, and people who use credit cards are “nerds” and “losers”.

I guess his experience early in his career has made him speak this way, but I find his attitude completely condescending. It is always ironic to me that some people who speak the most about their Christian faith are sometimes so degrading to others, and in Ramsey’s case, it does seem that he is wrapped up in getting money.

Leah Bell October 15, 2009 at 11:25 am

The notion that millionaires don’t use credit cards is ridiculously patently false. Millionaires use them and take advantage of the mileage/points and get free airline tickets and whatever else they can! Another reason they are millionaires. They just don’t finance their lives the way the rest of America does, buying things they can’t afford on their cards. Last year I had accrued enough points to get cash from Chase Visa. I called and said, “I don’t want gift cards can I get cash?” After a pause the woman said, “I can take $500 off your balance” I said “Now that is what I’m talking about!” I called the next card and did the same reducing another by $150. I said to my husband, “$650 for 30 minutes on the phone?” That is a deal. BTW I pay my balance every month and in my mind I get the money to stay in my account an extra month giving me the albeit paltry, but nonetheless, interest on it.

LAL October 3, 2008 at 10:14 am

Actually a lot of millionaires use CC and rewards. How do you think they became rich? Read the middle class millionaire.

By the way FLNONNY and everyone else who says CC are bad, where is this 12-18% Study?

EVERY PF blogger and I’ve asked a Harvard Economics professor about this study in class, NO one has ever seen it! No one has a hard copy! He said it’s a myth that the study was done. If it were a valid study it should be available online!

It should be in the economics library. It should be published so people can read and rebute these statistical finding. It’s a very basic principal. You publish your findings.

So this study doesn’t exist. It’s quote by Dave Ramsey, it’s quoted by his followers, but where is the study? Let’s see the pdf?

By the way I told my DH, and he asked his MBA classmates. NO one has ever seen that study, which TRUST me marketing people would love to use and hand about!

So until you produce this study stop quoting it. And Dave Ramsey should stop as well. He is promoting false information.

Kimberly October 3, 2008 at 10:30 am


I think you’re looking for an earlier study, but here’s one published in Septmeber 2008 – I haven’t evaluated it myself, and I’ve never agreed with the underlying principle, but here you go, just get the journal article:

A four-part study found what many financial planners already knew: People spend more money when using credit cards compared to cash purchases. People also spend less when they look at their expenses in detail, the researchers found.

Consumers simply feel the pain of paying more when they part with cash, the researchers, led by Priya Raghubir at New York University, write in the September issue of the Journal of Experimental Psychology: Applied.

* In one study, 114 participants estimated how much they would spend using cash vs. credit for a well-described restaurant meal. “People are willing to spend (or pay) more when they use a credit card than when using cash,” the authors wrote.
* In a second test, researchers highlighted the future pain of paying by having 57 participants estimate food expenses for an imaginary Thanksgiving dinner item by item, rather than just as a total. When they did this, the cash-credit spending gap closed. When people confronted the detailed reality of expenses, it no longer mattered whether they used cash or something else, the scientists conclude.
* Then 28 participants were given a detailed shopping list to work with. In a questionnaire format, spent more when they used a $50 gift certificate instead of $50 cash.
* Finally, 130 participants were given $1 cash or a $1 gift certificate to buy candy. At first, they were more willing to spend the gift certificate than the cash. But after holding the gift certificate in their wallets for an hour, they became less likely to spend it, indicating the the certificates came to seem more like real money.

“The studies suggest that less transparent payment forms [such as credit cards] tend to be treated like [play] money and are hence more easily spent (or parted with),” the researchers argue.

Kevin October 3, 2008 at 9:23 pm

@Todd: $6,000 is $6,000 though, right? If I was standing in front of you and said you can have $6,000 or not, which would you choose?

Regarding debt repayment confidence: why not consider making all of your payments on time (or making additional payments) as a buildup to your confidence?

Otherwise, glad you agree on the other points.

@TMS: Thanks for sharing. Glad you see the beneficial side of credit cards.

@GHolmes: I really think your point is irrelevant. You’re never in a “only buyer/only supplier” situation. It’s a cost of doing business that you would pay even if you didn’t use credit cards. I see your point, really, I do. If no one used credit cards then theoretically your cost of goods would be lower and your purchasing power would be higher. But I don’t see credit cards going anywhere… ever. They are here to stay. So why not earn returns? (But I did enjoy reading your back and forth with TMS)

@Paul: You wouldn’t happen to have a link to that clip, would you?

@LAL and Kimberly: Anyone have a link to that study? And I don’t exactly consider 114 to 130 participants to be enough to say for all the people in the United States, that these things hold true. Awfully small sample size.

Paul October 3, 2008 at 11:05 pm

I found the clip on YouTube–http://www.youtube.com/watch?v=dyDswUgLgzE–he gets pretty angry towards the end.

He also makes a reference to the Dunn and Bradstreet study and the 12-18% theory.

GHolmes October 4, 2008 at 9:40 am

Glad we agree that credit card use is a cost. Now if we could figure out the true cost, then we can make an informed decision not just buy into what the marketing folks sell.

I have always agreed with your point that credit cards are not evil and quite a few folks have better self control than radio host lament. Used properly a tool. Albiet an expensive tool.

Tim October 7, 2008 at 11:13 am

The thing to remember about Dave Ramsey is he treats debt like alcohol. Just like an alcoholic can’t take even one drink, in his opinion a credit-aholic can’t manage any credit.

I disagree with his absolutes in his approach to paying off debt but it is a simple plan that people can follow. I just don’t think it is the best plan for most people.

TODD October 7, 2008 at 1:33 pm

a follow-up from my Sept. 24 post….

@KEVIN’s response: I agree 100% with your argument of $6,000 is $6,000 and you use the example $6000 or nothing at all—which I think kind of takes it out of its context Here is an example that I will use though: you are given the option of getting $320,000 or $326,000; its pretty obvious that you are going to want the $326,000, but if you have to settle for the $320,000 i doubt you are going to be too upset. That’s how my whole mindset it. (Reminder: I am getting those numbers from the approximate amounts of all my payments when all debts are paid off regardless of what permutation I use.)

Now….now that I have made that argument I can already give you an update on my debt repayment. I recently received an unexpected bonus check at work. I used the money to completely pay off four of those small debts and apply some of the remaining money to the fifth one. As planned, I “reevaluated” the order of payments and will now be applying all extra money each month to the highest interest rate. Using that macro I was able to determine that I will only pay $4,000 more (again, looking at numbers in the $316K range) by not applying that bonus check to the large interest rate loan. Understandably you will most likely respond with $4,000 or nothing. I ask anyone and everyone though….has anyone else ever slept so much better just by eliminating even the smallest debts?!? I now feel completely refreshed on a daily basis.

GHolmes October 7, 2008 at 1:51 pm

Yes it does feel good eliminating/extinguishing a debt regardless how small. It is 8 months being debt free except the house using the debt snowball. 2 years not using a credit card period. What makes me sleep even better is not having to wait on any credit card statement to come becuase I have no loans outstanding.

Kevin October 9, 2008 at 7:48 pm

@Paul: Thanks for the link!

@GHolmes: Congrats on the debt freedom 🙂

@Tim: Agreed. I just disagree that most people can’t handle a credit card and whether or not people agree, I think it adds in just a bit of fear to the equation. “Drinking is bad, don’t go to a bar” may be true, but to completely say that you should never, ever be allowed to go to any eating establishment that sells alcohol would be ridiculous, right?

@Todd: Thanks for the update. I can see how if you have four debts that were constantly sending you notices and calling you how you would want to pay it off. Perhaps $4k is not much in the long run. I still would think about how much $4k could buy me, but I can also see your point as well. Keep up the good work at work and maybe you’ll earn more bonuses to get out of debt faster 🙂

LAL October 18, 2008 at 11:48 pm


I am interested in reading the entire paper if possible. I would like to read how they interviewed people and if they differed in those who pay it off and those who don’t.

Read this article.


Juan December 30, 2008 at 1:49 pm

I’d like to comment on your last paragraph.

“It helps automate our finances. I pay most of our normal bills with the credit card (electronically), and pay one bill to the credit card company (electronically) at the end of the month. I’m not sending ten envelopes with checks to various companies, trying to time them correctly so I don’t overdraw my checking account.”

My Wells Fargo MasterCard Debit Card does exactly the same thing. I pay all my bills online and don’t have to wait for a bill from a creditor asking me for money.

“I get security when I travel or buy things online. If my card is stolen, no big deal. American Express steps up to the plate and takes care of me.”

I recently made a purchase online, again using my Wells Fargo MasterCard Debit Card, and never received the item I bought. I called Wells Fargo and within 24 hours my money was back in my account.

“If I’m on my honeymoon in Mexico and someone steals all of my cash… well, that’s a different story.”

If I’m on my honeymoon in Mexico nobody will steal all of my cash because I don’t travel with cash…I travel with my debit card.

If you play with snakes you will get bit. Plain and simple.

Jeff September 2, 2009 at 9:13 am

If you have the cash sitting in the bank, why would you ever pull out a credit card? I mean, bonus points? C’mon…that’s drinking the Kool-Aid of the credit card marketing machine!

Kevin September 2, 2009 at 9:23 am

Jeff, as has been discussed here… if the card use costs you nothing and you get something in return, why wouldn’t you use it?

If I said “Hey Jeff, I’ll make you a deal. You’re a smart guy. You use your debit card perfectly (no going over your budget, no overdraft fees, etc.). I will give you something that you can use just like a debit card, but at the end of the year I will also give you $300 to $400. Are you interested?”

What would you say? If you can’t control your spending (credit card or not) then you will likely say no.

If you have a solid grip on your spending habits then it makes literally zero sense to turn down a free $300 to $400.

JoeTaxpayer September 2, 2009 at 10:10 am

Kevin, I’m beginning to understand something. You (and I) are not typical of Dave’s audience. They are so irresponsible as a group that the only comparison that makes sense is that of AA. An alcoholic canot just have one drink. The fact that maybe 1% or so can go back to social drinking doesn’t make the concept welcome at meetings.
You and I can spend on cards no different than we do with cash, gaining the float, convenience, and a few perks along the way. Put 10 Davers on that program and 9 will fall off the wagon, either losing track of their spending or messing up one way or another. See my other remarks here, I agree with you 100%. But Dave fans are already a subset of people, not a typical average group. Make sense?

Jeff September 2, 2009 at 11:27 am

I am not sure what you mean by “But Dave fans are already a subset of people, not a typical average group. Make sense?”
I think people that can control their spending are the exception. I think people striving to make ends-meet and strive to understand economics and make themselves better people are the average group.
If you don’t struggle with debt…congratulations! You sleep well at night. For those of us trying to get in to that “universe” – I think whatever program you stick to where the yield result is success and consistency is the right one for you.

JoeTaxpayer September 2, 2009 at 11:34 am

I mean that in the bell curve of life, at one end there are those who can’t fathom why one would not grab the points/miles, etc, because for them a card is not different than cash as they’ll pay it each month. At the other end are people in such dire straights that the best advice one can give them is what Dave preaches, to avoid cards completely.
I’ve posted in many blogs that I disagree with Dave’s blanket statement “there is no responsible credit card use” and I still do. But – I acknowledge that for his audience that statement may be true. Better?

Jeff September 2, 2009 at 11:45 am

Joe: I don’t think Kevin puts himself in the same boat as you…I was surprised to find out he will be a Coordinator for Dave Ramsey’s Financial Peace University helping all these folks “At the other end are people in such dire straights that the best advice one can give them is what Dave preaches, to avoid cards completely.” Good for him! a wise man studies what he doesn’t agree with our understand.

Drew October 31, 2010 at 7:34 am

“Subset”…the average Dave listener is the average American and your situation is out of the norm. Most Americans are in debt and spend continually and have no control

Jeff September 2, 2009 at 11:18 am

Kevin: I totally agree with your comments.

Unfortunately for myself (and only myself) I would answer the question: “What would you say? If you can’t control your spending (credit card or not) then you will likely say no.” NO, because I can’t control myself. Just being honest here. I just posted a comment below, and mentioned that this comment board actually turned my thinking around on the subject. Just because I can’t do it…doesn’t make it bad.

James April 28, 2016 at 2:39 pm

I just pay cash and the math is much more simple. I don’t need a complex Excel spreadsheet or Quicken and I don’t have to call a credit card company to get cash back. Debt free and a simple life…too easy. As for Joe Taxpayer, it must be tough knowing all the answers and feeling all alone because the “subsetters” don’t get you. Good grief.

Kevin January 2, 2009 at 3:06 pm

@Juan: I tire of these same arguments when they’ve been addressed, but I’ll respond nonetheless.

Before I start let me say for those who disagree, that’s completely fine. You’re entitled to your opinion. So am I. At the end of the day it is unlikely you personally are going to change your anti-credit card stance because of what I say. So let’s agree to civilly disagree.

So, Juan:

What do you do when your service provider accidentally charges you more than you were expecting and takes the money right out of your account? Sure you can call to get it back, but what if you don’t catch it in time? What if this overcharge causes you to be charged overdraft fees? What if your bank doesn’t provide great customer service?

Just one scenario where having the money removed immediately can be a terrible idea.

Now you may argue that my experience with credit cards is the exception rather than the rule. That’s fair. I would also argue your experience of getting your money back in 24 hours is the exception rather than the rule. I know more than a few people that it has taken days or weeks to get their money back. I had one co-worker have $3,000 taken from his account (about 3/4 of their total monthly income) and it took 10+ days to get the money back. That’s devastating.

The snakes and getting bit thing is promoting fear. I could say using a debit card is like playing with snakes as well. Both are tools, not things to be feared.

I also get to keep the money from my charges in my savings account earning (currently) 2.5% interest. Now you may not think that is much, but if our bill is consistently $2,000 per month that’s an extra $50 per year for very low risk (low because we know how to use credit cards).

Juan January 2, 2009 at 10:28 pm

I agree that we will not change our stances so I can agree to disagree.

That being said, I will respond to your comment. The plain and simple answer to your question is find a bank that has better customer service. Like I said, I made a purchase online and did not receive the item. I reported it to Wells Fargo and within 24 hours the money was there.

If your friend had taken Dave Ramsey’s advice and planned for emergencies the $3000 mistake would not have affected his/her life the way it did.

Failing to plan is planning for fauliure.

Barbara Weatherly January 6, 2009 at 12:34 am

While even 6 months ago you would have been right, in today’s economy you are not. And where is it written that Parents should PAY for their kids college. If a kid wants to go college and can’t get aid, it’s called a job. If they are over 18 they need to start taking responsiblity and paying their own way. Dave’ s idea is that people take responsiblity for their money. He is right about the snowball thing. People need to see a light at the end of a tunnel. And credit cards are over used. those enticements you are so happy aren’t free. They cost you money. You may not see it that way but they do. Cashback is not a good enough reason to use a credit card. Nor is frequent flyer programs which I would never use. If it sounds too good to be true it is.

Kevin January 6, 2009 at 8:53 am

@Barbara: Thanks for stopping by and continuing the discussion.

I’m not entirely sure what is different from 6 months ago to today. I think the principles still stand.

I don’t exactly agree with your college stance. I am fine with parents assisting with education, but it shouldn’t come at the cost of saving for retirement.

You offer no evidence as to why he is right about snowballing your debts. On the other hand, I can show you mathematically why you shouldn’t snowball your debts. Show me some evidence. Yea a light at the end of the tunnel is nice, but when you snowball the debt the tunnel is longer than it should be (because it is possible to be paying lower interest before higher interest).

On credit cards, can you back up your opinion? I’ve showed time and time again on this blog that credit cards are just a tool. No, credit cards do not cost me money. You have no evidence. Check out the comments GHolmes and I made on October 3rd. He tried to argue that credit cards increase the cost of buying stuff because of what the merchant must pay the credit card company.

While this is true on paper — the cost does increase (or profits are diminished) — it does not decrease if you do not use a credit card. The point is moot. It is very rare, in my opinion, for companies to offer cash discounts.

So you are left with the decision: pay full price with cash and no cash back, or pay full price with a credit card and get cash back. It seems pretty simple to me.
Unfortunately that will never happen.

I’m all for people taking responsibility for their money. Just like I’m for people taking responsibility of using a credit card. It’s a tool like an axe. An axe can be used for good work like chopping wood. It can also be used to kill. The same is true of credit cards.

I wish people would stop fearing credit cards. I’m not for promoting fear. It’s a piece of plastic. It doesn’t swipe itself.

The Happy Rock January 6, 2009 at 9:42 am

@Kevin – Here is at least one scientific study on the credit card premium that I have written about in the past. There are some others and at least one showing a correlation between just displaying that credit cards are accepted in the window effects sales. No companies want to pay this type of research since there isn’t much benefit from a market standpoint that credit cards cost us more.

Barbara Weatherly January 11, 2009 at 12:15 am

Yes,  credit  cards  do  cost you.   If you  paid any  attention to the news  you would know that the next financial  crisis is  credit  cards.  The  snowball  works  this way,  you paid  off the smallest first then   take  what you  were  paying on that  debt  up to the next level and so on and so on.  Cashback is a scam. You do realize that when you read the fine print on credit card aggreements the credit card companies actually get the best out of the deal they can and do change the terms whenever for whatever they want.

Kevin January 11, 2009 at 12:20 am

@Barbara: Unlike The Happy Rock, you have yet to provide any evidence to back up your claims. I see no point in you continuing to comment here if you can’t at least provide some sort of evidence other than “Yes, credit cards do cost you.”

Credit cards have cost me nothing. Nothing. Zilch. I haven’t paid a dime in interest or finance charges or annual fees. I’ve earned $400+ in cash back two years running. I’ve lost nothing. I’ve spent the same amount of money I would have otherwise — with a debit card, with cash — and gotten free money in return.

I am aware that credit card agreements say they can make changes as they please. That’s why I stick with high quality firms like American Express. Customer service goes a long way.

Would you care to back up your claims or should we just end this conversation here?

James April 28, 2016 at 2:45 pm

I think some people feel good about paying cash. The cash-back argument is fine if you can control your spending. Me, personally, I’ll pass on the whole thing. I will just pay cash and be completely done and not have to ask for any money back. The people who do pay their bills on time are the target audience of the credit card companies. They want the cat who pays the minimum.

Concerning the debt snowball. I think society telling you that you DESERVE to have everything is where the psychological damage started. Once you live within your means you’ll find much more happiness and security. I sure do.

Barbara Weatherly January 11, 2009 at 12:27 am

No, they don’t swipe themselves but they are not tools. I worked retail for over 20 off and on. It does cost the merchant for you to use credit cards. At one point it was about .5% to 1% of the total sale. Which means they raise prices to cover the costs so yes it does matter. I don’t think you should be afraid of credit cards but thinking of them as tools is just plain silly.
My grandfather had a term he used about people he felt were being silly (which they were) educated idiots meaning they had a lot book learning but no common sense. Thinking of credit cards as tools falls into that catergory.

Kevin January 11, 2009 at 12:36 am

@Barbara: Love the personal insults. Thanks for that.

I’m imagining this scene. A retailer opens up a new store in a new town. The bad guys in black suits in a black car roll up in front. They’re from the credit card company. Gasp!

These men in black suits wearing black sunglasses get out, storm through the door, and pull out guns. They take the owners at gun point and force them to sign the form.

That’s right, you MUST accept credit cards and all of the costs that come with them.

Wait, no, that’s not how it happens. No one said you have to accept credit cards.

“But everyone in America uses them, if you don’t accept them your business may not survive. So raise prices a fraction of a percent to cover the costs.”

It’s a choice. So they raise their prices.

I’m AWARE of the higher cost of the product. So let me get this right, since you apparently don’t use credit cards, do you pay less than I do for products? Have you negotiated 1-3% cash discounts with all of your favorite retailers?

No? Then you are leaving money on the table. You can use cash or you can use debit or you can use credit — the cost ends up being the same 99.999% of the time. In my instance, using credit earns us hundreds of dollars per year in free money.

What would you prefer I think of credit cards as? Evil weapons of personal destruction? What is a debit card? They are pieces of plastic. Plain and simple. It takes an “educated idiot” to use them incorrectly.

Barbara Weatherly January 11, 2009 at 1:02 am

My  dealings  with  American  Express  was  decidedly  much  different  than yours.   I  did not  get the  “quality customer service”  you  say  you  get.    My  evidence is that I actually  pay attention to  what the  experts in the media say. Not one I hear or see say that credit cards are a tool. 6 months ago we didn’t put $700 BILLION of our tax money to bail the finanical institutions, now we have. 6 months ago there weren’t 800,000 people out of work. That changes a lot of things. When you are worried about whether you are going to have a job you don’t add to your debt you start paying off loans and cards and piling up cash. Getting cashback is the least of your concerns. None of the media financial gurus/experts even take into account cashback. That tells me that cashback is not all it’s cracked up to be.

Barbara Weatherly January 11, 2009 at 1:19 am

No,  they  don’t  force you to take them but like I said  I worked  retail  for  over 20 years,  most  stores  I worked  by the  way did not  take American  Express that I do not  know why  they  didn’t they just  didn’t.    But the  areas  where I worked  retail  pay  more  with cash than  credit cards.  And I have  noticed  an increase in  the minimum purchase you can make with a credit card at  the stores  I  frequent.  That is very  recent.  I  say  with the  last 2 or 3 weeks.  That  one  I  am surprised by. Not sure why that is occurring.

and yes I use credit cards. I do not however get cashback. So I am not leaving cash on the table. I do get points when I use my debit card but not with the credit card.

Randy February 19, 2009 at 3:33 pm

Great discussion!

Okay. I’m going to jump on BOTH sides of the fence here. This argument could go round and round and round because Kevin is focusing on what HE does financially and Dave Ramsey is focusing his message on the majority of his listening audience.

For me, I use all of Dave’s principle’s and am completely debt free except for my house. But, just like Kevin, I use a credit card as a debit card and carefully track EVERYTHING I spend just as if it were a debit card. I have a budget and certainly don’t pay 12-18% more than I would if I used all cash. I have NEVER paid any fees or interest. I pay my bill off in full online each month. Because I do this, I can still save, spend and give money away just like Dave preaches. I pay ALL my bills on the credit card each month which allows me to totally rack up the air miles! In 2006, my wife and I went to Hawaii for a total of $20 using air miles. That’s right, two tickets for $20! We stayed in a nice condo (much cheaper than a hotel)right on the beach with another couple friends of ours so we could split the cost. We also made most of our meals which was great. This ending up being a great trip for a very low cost compared to what most would think. Since then, we have done this several times and are planning another trip to Maui this year. Without credit cards, we would pay MUCH more for a trip like this. This system totally works…FOR ME.

That being said. I love what Dave Ramsey does. He gets his message out to the masses, most of which do not know how to handle credit or personal finances. What if Dave Ramsey said it was okay to use credit as long as you make sure you are using it just like a debit card, getting cash back/rewards, and paying off the balance EVERY month. Never paying a dime of fees. This would not bode well for a large majority of listeners who are deep in debt and don’t know how to dig their way out. He HAS to preach this message to help the people out there that cannot handle a credit card. Those people DO NEED to be scared of a credit card for the time being. The worst way to get out of debt is to borrow money.

Dave’s baby steps work. I’ve gone through them myself to become debt free and taught them to others through Financial Peace University. When people ask what I do I give them an honest answer, but I preface it by saying that I am VERY careful with what I spend. The vast majority of American’s are not this disciplined when it comes to personal finance.

So to sum up, Dave has a NATIONAL talk show. It’s not up to him to determine if each caller is responsible with money or not. He has to assume that they are not, and by doing this he has helped thousands of people become debt free.

GHolmes February 19, 2009 at 5:32 pm

Valiant effort to ride the fence but you are wrong. Dave Ramsey gives advice on how he handles his own finnaces. He feels the risk of using credit cards outweighs the benefits of $20 airline tickets.

TMS February 20, 2009 at 10:57 am

@Kevin: Barbara just doesn’t get it, does she?

@Barbara: You just don’t get it, do you?

@Randy: Very well said. Same situation here: use credit card and pay off every month. Reaping the rewards, too!

Kevin February 21, 2009 at 11:58 pm

@Randy: Well said, and I can agree he has a different audience. I just don’t get why he couldn’t tweak his message a bit and say, hey, if you’re too dumb to use a credit card then don’t. Or don’t use it for one year after being out of debt. Build it into the plan.

@Gholmes: are you kidding? If he is only talking about how he handles his own finances, how is he getting into specifics of other people’s money when they call into his show? That’s not his money, it’s theirs.

Are you telling me that if you could spend the same amount with credit that you would with cash, and get $400 cash back every year, or $20 airline tickets, or whatever, that you wouldn’t do it? Are you they scared of the little piece of plastic?

This discussion will go round and round. I’ll agree to disagree. Some, like myself, can use credit cards. Others can’t.

@TMS: No, she doesn’t, but that’s okay. I’m open to all ideas here. What type of rewards do you use and how much have you earned with it?

GHolmes February 22, 2009 at 3:56 pm

No not kidding. He is giving advice how he would approach it if he was in that person shoes. His is a simple plan that doesnt need changing because he is a radio talk show.

Not scared, For myself I dont feel leveraging debt is right. Your strategy of leveraging debt for $400 (or some other marketing tool) isnt for me.

Kevin February 22, 2009 at 3:59 pm

@Gholmes: Fair enough. Hope you’ll stick around and keep commenting. Enjoy the discussions.

Ross February 27, 2009 at 1:18 am

I have to say that I couldn’t agree with Kevin more on how to use credit cards. I have to respond to the merchant side of the discussion. I own a restaurant that takes credit cards debit cards whatever means that ends up in the bank. First of all the cost of taking credit cards and debit cards is approx. .7% of my overhead. I can tell you that an increase in credit card fees is going to have my prices raised is a waste of my time. Price for me are mainly affected by food and labor which add up together to be approx 60% an increase in either of those two cattegories is what is going to cause a price increase. Or to put it another way if it were absolutely free to take credit cards my prices would not be going down based on an elimination of such an insignificant expenditure. Also taking checks which I am assuming is considered in this topic as cash is also not free. The bank charges processing of checks also the number of bad checks that are written any given week. Which approx 1/3 of that balance does not get collected. As a merchant at least when I swipe the card and it goes through I know that it is in the bank.

Kevin March 7, 2009 at 1:07 am

@Ross: Great comment! I am going to use this as a follow up post. Thanks man!

PJ March 11, 2009 at 1:57 pm

Good thoughts. I like and teach Ramsey’s system – it is helpful for folks who are drowning in debt and who have no clue why…and there are a lot of folks in that boat.

I have a credit card – I use it for online purchases and for items where I know a reimbursement is coming down the line. It’s just more secure than using the debit card. For a lot of folks, having a credit card is a lifeline – they use it for pizza when they’re out of time, they use it for car repairs when they don’t have cash. They don’t realize it, but the card gives them a leash for added debt.

As far as the debt snowball…it’s better than nothing. And if you’ve felt the emotional noose of not having enough cash at the end of the month, the psychological advantage of the start small debt snowball is huge.

People who know that paying the largest interest rate first are smart enough to stay out of debt! They have wisdom that replaces the need for a psychological advantage!

Instead of saying ‘Dave Ramsey is dead wrong’ – a more accurate thing to say is ‘Dave Ramsey’s system is not right for me.’

PJ, 32 years old, and yes…i’m debt free

Kevin March 11, 2009 at 5:31 pm

@PJ: It is better than nothing. But it irks me that Ramsey apparently thinks his listeners can’t handle credit cards. Sure, some of them can’t… but I would argue a majority are certainly capable of doing that. Congrats on being debt free.

Dustin June 10, 2009 at 6:21 am

I guess what irks me is that people like you look at what he says so rigidly. The truth is he you follow his play you will be debt free. So what if in the process of paying 23% on the $3000 you pay a little more in interest. I think from years experience of counseling others he is totally qualified to say that the emotional victory is bigger than the math victory. If you pay them both off in six month, how much is it really costing you anyway – not that much. Like he says, if you were so good with math, why would you have those debts in the first place? When I was working the debt snowball, I opened a card that 0% interest for a year and rolled my balance (free) and paid it off. I’ve heard people on his radio show do the same and he has no problem with that.

If you have read or listened to Ramsey you will have learned that steps 5,6,7 are all done at the same time. I don’t know why you would suggest borrowing for your kids’ college. I’ve heard Ramsey say several times that retirement is more important that kids’ college. In any case I wouldn’t borrow for it. Your kids can WORK through college and pay for it themselves. I did it. It certainly didn’t kill me. I got my BS degree without incurring debt for it.

You look at Ramsey as if he is so condescending to suggest that people shouldn’t use credit cards because they can’t handle them. I tend to think it is more of a war against them because of many of their unethical marketing and collecting practices. This world would be better off without them really.

Kevin June 10, 2009 at 8:01 am

@Dustin: I love your condescending “people like you” start to your comment.

Commentors “like you” irk me as well. I try to keep an open forum in the comments, but when someone fires at me I am going to return the favor. 🙂

Yes, if you follow your plan you will be debt free. I’m not contesting that. Does that make the plan correct? What if you could follow a variation of his plan that actually made sure you paid off all of your debt with the smallest interest expense? My question: why knowingly pay extra interest when you don’t have to? I’ve yet to see a good answer to this question. That’s because there isn’t one.

I think the years of him making millions of dollars helping people makes him biased to push his plan. Imagine if he had to change his tune and say whoops, you can get both emotional and math victories at the same time? Imagine all the books that would have to be reprinted…

I’d be more than happy to run the math for you on how much more interest it is going to cost you. At any point you seem to be happy paying extra interest. How is this good for the listener/reader/devout follower of Ramsey?

I’m not saying you have to borrow for your kid’s education — I am saying that if you plan to pay for your kid’s education you would be better served helping them with loans than ignoring saving for retirement. And congrats on getting through college on your own. But that’s your one experience, just like I’ve got my own experience — we are each biased towards them.

Yes I do believe Ramsey talks down to people about credit cards. He hates the credit card industry. That’s fine. But there seem to be a significant number of people out there that use credit cards responsibly. I know Ramsey knows this. I know that if you can use a debit card successfully (and not run into overdraft charges) then you can handle a credit card. To say otherwise is talking down to people. Period.

Re: war against credit cards — I find it hilarious. That’s war against capitalism. Remember. Credit cards are a piece of plastic, just like a library card or debit card. The credit card doesn’t jump out of your pocket and put a gun to your head forcing you to spend money. To say otherwise is laughable.

To say the world would be better off without them is an uninformed opinion. How many small businesses have been started using credit cards simply because there was no other option? Yes, they are taking a risk (and they know it). How many of those small businesses now employ 1, 5, 10, 100 people? I don’t know, and neither do you.

Again, myself and many others know that we control our spending, not the credit card and not the credit card company. We seem to be handling credit cards just fine. And I’m going to earn $300 or so this year based off of my cash back. I would say my world wouldn’t be better without them.

James April 28, 2016 at 2:50 pm

What do you spend your $300 cash back on if I may ask? I am just wondering.

Hibryd July 5, 2009 at 11:48 pm

My story – my husband and I are looking to buy a house. We each dropped $35 and got our official FICO scores. His was good – the high 700s, but mine was over 800. The only difference between our scores, according to FICO’s suggestions, was that my credit history was a few years longer than his. That longer credit history was thanks to my mother, who told me on no uncertain terms to fill out the first credit card offer I got in the mail, use it for gas, and pay it off every month. After I got my stellar FICO score, I called her up to thank her for that advice she gave me all those years ago.

Now, I have a lot of sympathy for people who have a hard time resisting the siren song of the plastic in their wallets. (Money is the one area of my life where I’m actually pretty disciplined by nature – if I wanted to buy stuff as badly as I want to eat all the time, I’d be in trouble.) BUT I think having no cards, and encouraging you kids not to get cards, is taking things to an irresponsible extreme. Employers run credit checks. Rental complexes run credit checks. And unless you forego owning a house until you’re 40-50 years old, you’re going to need a mortgage eventually. Twice on his show I’ve heard teenagers call in who were proudly anti-plastic, and he just poured on his accolades. While that may keep them out of trouble in the short run, it may bite them in the ass in the long run.

JerryG July 16, 2009 at 3:45 pm

I used to have a debt problem, long before I ever heard of Dave Ramsey. I figured out on my own to not use debt when I went deeply in debt for stupid stuff. I paid it off as fast as I could. When I was just finishing up, a friend of mine told me about Dave and I listened to his radio show a few times and I thought “Geez, I wish I smart enough to start my own radio show and get rich off people deep in debt.” Not to say it’s bad advice, I mean most of it’s great advice and I wish I had heard about him three years earlier, I would have been out of debt faster. My only problem is the smallest debt to largest, like you said, because if it’s a large debt you could lose a good deal of money through the interest rates.

Another thing that seems to never work in real life is when Dave talks about getting a small cash discount. A local gas station has a 2 cent per gallon cash discount. But my car’s tank is small, 11 gallons. So at any one time, it’d save me about 20 cents every month. Today I got a new car stereo installed for the purpose of connecting it to my iPod. It cost about $320. I asked if they had any sort of cash discount and the guy said no. And this wasn’t true for just this local electronics store, but pretty much every store I go to. I’m not good at negotiating so maybe that’s my problem, but Dave made it sound like you could get cash discounts all over the place.

steve in w ma October 9, 2009 at 1:35 pm

If you want a cash discount, instead of asking them if they offer one, do the math beforehand and take 1% off. Then say how about if I pay you $x in cash, instead of using a credit card.

If they say no, then say,, ok, “I am willing to buy it for $x in cash. ‘I’m offering you more money than you would make using the credit card and you won’t accept it?

and just stop talking and wait.

the first person to talk loses.

if the person stil says no, ask to speak to a manager or the owner and then do the same thing.

if they say no,

Become Debt Free July 19, 2009 at 2:11 am

I totally agree that Ramsey is wrong to say pay the smallest amount first. You should always concentrate on the debt with the highest interest. The trouble is that people don’t understand compound interest and how it works against you when in debt. And Ramsey is pepetuating that ignorance.

James April 28, 2016 at 2:54 pm

It’s psychological and Dave says that countless times. Do you just tell an alcoholic to stop and expect them to stop? No, that’s why they created the 12 Step Program. If it were about the math you wouldn’t be in debt to start with.

dan July 28, 2009 at 9:44 am

I read this post last night and wanted to comment but I wanted to think about what I was saying first I’m going to take a look at your three beefs:
1) Dave says pay the smallest debt first. I know this has been talked about but Dave is going for the psychological aspect of paying off debt. My wife and I started with about $45,000 in debt all in student loans. We started by paying off the smallest one first and mainly the reason was looking at a debt of that size, it feels GOOD to pay off one of my loans. I feel like I’m getting somewhere. I saw another post on the internet where the person shows it does end up costing a little bit more to do the debt snowball, but psychologically, it makes a huge difference.
2) I guess I’m confused about your second beef. Step 7 is basically build wealth and give. In step 4, at least how I read it, that is where you start preparing for your retirement, which is before steps 5 and 6. So maybe I’m reading it wrong but that is how I interpreted it.
3) Your third concern is the one that no matter what I say, I would change your mind to all of a sudden stop using credit cards, nor will you be able to change my mind to start using credit cards. I believe that using a credit card makes you go into debt, even if it is only for a month. I also believe that going into debt is wrong (I know I am in debt with student loans and if I could do things differently, I would have saved up money for college). Hence I believe that using credit cards is inherently wrong. Now like I said, some people are able to always pay theirs off. I would like to think that if my wife and I used them, we would also be able to pay them off each month. It’s really a choice of the person, although Dave quotes a study done by CNBC, or some major TV news station, where people would spend about three more dollars per order at McDonald’s when using a credit card.
I know Dave doesn’t fly with everyone. I think he has helped my wife and I get control of our money but to each their own I suppose.

JoeTaxpayer July 28, 2009 at 10:16 am

Dan – I’ve written on this as well, and would like to respond to you. The high-interest vs low-balance, is a choice. One can pull out spreadsheets and calculate the cost of that choice. With a small difference in rates between cards, the difference in total cost is moot, small enough for the ‘feeling’ to be worth more than the few dollars saved. (Fair enough?). With a (contrived, but not completely insane) scenario, of many low limit cards having sub 10% rate, but one large 24% card, the savings can be thousands over a few years payoff.
My personal issue with Dave is not his preference of small balance first, it’s his delivery, answering a reader by saying that paying high rate first is “a myth” and the wrong this to do. To disagree with me is to say that no one should look at that cost regardless of discipline or other aspects of their life. I think knowledge is power, and you are welcome to dismiss my preferred method, but you should just see the cost. (No different than anyone buying a car. You want a luxury car? ok. But you’d always ask the cost difference between transportation and luxury.)

Using credit cards – there are people who use cards, and have cash in the bank to pay in full each month. I am one. And I have no need or interest to listen to Dave Ramsey. (stick with me.) Dave’s audience is not a random selection. They are the ones who should not use cards at all. I took me some time to understand this. Venn diagrams help. When an AA speaker says you can have that first drink, he is right. But I stop after two, and I don’t need meetings. There is a responsible way to use cards, and I have the miles for free travel, as well as the 529 account funded with rebates to show it. But Dave is speaking to the audience for whom the statements he makes is more on target than an adviser with a general audience. Make sense?

susan August 5, 2009 at 1:19 pm

Who says parents are responsible for a child’s college education? I save 10k per child for college or vocational school. If children have a financial stake in their education they will take it seriously and not party through college. A daughter of a friend told me she is going to college because it is paid for- she has no goal at all. My son went to community college for the first 2 years of college, started a business, took off 2 semesters to make a lot of money in his business then is transferring to a 4 year school to finish his degree in accounting. My second child is unfocused and is working after high school until he decides a path. A college education is a gem of opportunity to be treasured.

Doug August 13, 2009 at 1:26 pm

Just a question…
You said it makes more sense to purchase things with a credit card and i agree with that because without credit in this world you can barely do anything. Only problem is…Why pay for a 50 dollar item if you have the money in your account? Putting it on a credit card will make that $50 item more with the interest you pay on it. So it is basically like throwing away money.

Kevin August 13, 2009 at 1:40 pm

Doug: Why charge a $50 item if you have the money already?

1. You get to hold the money in your savings account earning interest. Obviously on $50 this isn’t a lot… but on $1,000 to $2,000 each month… month after month… the interest starts to add up.

2. You aren’t paying interest when you pay the card off at the end of the month.

3. As I mentioned in the post, I earn cash back from charging my purchases. If I earn 1.5% on the $50 purchase that is $0.075. Sure, a small amount. But again for $1,000 to $2,000 per month that starts to really add up.

Thanks for your comment.

Gholmes August 13, 2009 at 3:40 pm

Kevin – At the most $400 a year. 2k a month ((12*$2,000)*.015)+what ever your savings/checking earns on the 2,000).

For me the $400 doesnt really add up to the hassle of having another bill to be tracked. That and the banks changing thier policies whenever it suits them.

JoeTaxpayer August 13, 2009 at 5:28 pm

Gholmes – we happen to go though enough spending so that the cash back (to a 529 account) is just over $8000. Plus the small interest on the float. Plus not having to go to the ATM to pull cash out every week. I’ve not paid a dime in interest in over 20 years, not sure about Doug’s point. The cards I use have no fee and since I pay in full, no interest. I can’t tell you the rate, it may be 20%, because I never pay it.
If Dave is right, than I am one in a thousand, and not his target audience.

Gholmes August 13, 2009 at 6:23 pm

J.T. – Im assuming $800 not 8,000. Still well enough and impressive of no interest for 20 years. We have been debt free for only 2 years. Getting use to more of a simpler lifestyle.

JoeTaxpayer August 13, 2009 at 6:46 pm

Nope, $8000 at its peek. In the interest of full disclosure, it’s now just over $7000. Jane and I both have employee-reimbursed expenses we can run through the card. So a couple day trip can be $3000 between airfare, hotel, car, etc. This was accumulated over the last 8 years, and Jane 2.0 has 8 more years before college. I am hoping (but not counting) on this paying for a semester.
But, even if it were just $800. The card use cost nothing. I hear ‘them’ say it’s easier to spend on the card than cash, and that may be. But let me throw this out – we save 20% of our gross for retirement, more than the rules of thumb suggest. College is nearly fully funded, 3 years in today’s dollars, today, so in 2 more years we need only save for inflation, not base cost. The mortgage will be paid off a full year before college starts, and 5 years before Jane plans to retire. Given that, I can risk indulging a bit.
If cards are to debtors like alcohol to alcoholics, then for those people, Dave is correct. But for the disciplined, I don’t buy his sermon.

Jeff September 2, 2009 at 11:10 am

Hey Kevin! This is an incredible discussion going on. And, at the start, it got my “ire” up for someone talking against my man Dave. But, as I read the compelling and intelligent arguments (and even just the opinions) I find that the common thread is that debt is both an emotional and financial problem that really bogs down the soul. I have high praise for people that have gone through the exercise and are debt free. I have equally high praise for those, like yourself, who are disciplined enough to “game” the credit card system and take some of their money back..kudo’s to you!

My wife and I woke up last year to find over $60,000 in debt with a car we couldn’ t afford, drowning in every debt from credit cards to 401k loans and just absolutely no way to figure it out. I was traveling in Oregon and heard Dave Ramsey on the radio talking about his baby-steps..and the light went on…”I can do baby-steps”. So, we have followed his plan, and of our $59,063.20 in debt only $28,899.09 remains after 1 year. We got totally radical on his plan…but like many have voiced here…we tweaked it because we do understand the mathematics around higher-interest rates being paid off first and that actually gives you more money to put towards the lower interest rate cards and speeds the whole process up.

Secondly, we do follow the envelope system. For us, the feeling of cash in our hand actually “trains” us to say no…we can actually “visualize” the end of the money for the pay period. My hats off to folks like you who are disciplined and can monitor that process in other ways.

And third, a point where I disagree with Dave on is cutting up the credit cards and not caring about your FICO score. I am Project Manager in IT. We, among other pieces of sensitive information, deal with customer finances. Time and time again, I have had to disqualify potential employee’s for bad credit..you just can’t take that risk. So, if your FICO score (no matter how irrelevant people may say) is bad..it can cost you jobs and income. I think Suze Orman has the win column on this one…but I don’t want to start a Suze Orman is wrong discussion…lol!

So, thanks, Kevin for keeping this discussion lively, fresh and intelligent! It really gets personal – and passionate!

Brittany September 15, 2009 at 7:41 pm

Thank you for writing this. It is concise and to the point and I could not agree more. I am a newlywed and a Christian and everyone is pushing me to take a Dave Ramsey class “before it’s too late”, cut up my credit cards and pay off my college debt in two years. It’s offensive to think that Mr. Ramsey is the only one who can come up with a financial plan for success. Besides, basics are basics…..regardless of whether you charge it or spend cash, don’t spend more than you have in available funds. Except when it comes to homes and cars (and of course you would attempt to pay them off ASAP). Unfortunately Ramsey paints a black and white picture of finances and that just isn’t how it works. Thanks again for a great read!

steve in w ma October 9, 2009 at 10:58 am

Kevin, the credit or abstracted money vs cash spending study was based on an experiment, not a survey, and an experiment is different in terms of applicability to a population than a survey or statistical study of a population, in which sample size is important. Generally, if an experimental design is done correctly, the results are considered to be generalizable. So the fact that the participants numbered only 114 does not discount the results of the experiment.

Incidentally, my understanding is that it is something of a myth that large sample sizes are necessary in all statistical studies. There are various ways to get meaningful results out of smaller sample sizes. These are known to statisticians of reasonable knowledgeability. So while larger sample sizes can be beneficial, a well designed and executed study with smaller numbers could also yield information that is representative of a population, with some mathematical tweaks to compensate for the small size.

However, in this case the study was an experiment, not a survey or statistical study, so 114 participants was plenty.

steve in w ma October 9, 2009 at 11:03 am

following up on my previous post:

my experience has been that any time money is spent without first having budgetary limits in place, more is spent (by me).

This is particularly true with credit spending because there is no physical or perceivable limit to spending at the point of sale (feedback only comes from the credit card company in a bill that comes once a month, after the fact).

It is also true of cash spending of the “i have a wad of cash in my wallet” type.

I also use my credit card for most purchases but use it as a secondary form of payment after my cash envelopes. I check my cash envelopes, make sure the cash is there, then use the card to pull the trigger on the purchase, then (later) remove the same amount of cash from my cash envelopes and put them in a separate envelope (actually, section of a little accordion file) that I call “the bank”. This way I stay within my cash spending limits, plus get the cash back from my card. It works very well, better than any other method I have tried.

steve in w ma October 9, 2009 at 11:11 am

Anecdotally, (I work behind a retail counter and transact thousands upon thousands of cash and credit transactions with customers a year), my observation is that the credit card spenders as a group spend more per purchase, and more impulsively, than cash spenders.

People who pull cash out of an actual envelope (I am seeing more and more of them) are the most deliberate of all shoppers I have observed. I often comment on the envelope thing with them and across the board they say that the cash envelope system is awesome and just “works”. One woman I said “Wow, cash! And out of envelopes! That’s so retro” and she said with a big smile, “Hey, *IT WORKS!*”

Which it indeed does. I do however use the credit card as part of the cash envelope system, as noted, to actually pull the final trigger on the purchase when I am doing my own shopping. This gives me the benefits of the cash envelope system along with the benefits of cash back and other credit card bennies.

JoeTaxpayer October 9, 2009 at 11:28 am

I find the spending difference study between cash/cards to be curious. How can it be conducted to avoid false correlations and/or bad sampling? Are readers of this blog a sample? Sure, but not average. The reader is already computer savvy enough to be here, and interested in finance to pay some attention to their money.
I go to the supermarket and see laundry soap on sale. Half price. If I buy a dozen, and blow my budget is it ‘because’ of the credit card? Is this purchase ‘bad’? Even if my budget were so tight I paid 2 month’s interest, this purchase would return 100% tax free as it’s used up. It’s easy get distracted by all the behavioral observations and turn those into absolutes. If one is that undisciplined, and it takes cash to get them in line that’s fine. Just won’t be an approach I’d take.

ScoopBucket November 19, 2009 at 11:50 am

It is not only his credit card issue that is flawed. His views towards borrowing in general is outright flawed. He says that you become slave to the lender. But what about in the case where you use borrowed leverage and have tenants pay your mortgage? Many things in his program do not make sense. He gives good advice for getting out of your immediate debt issues, but not good for a financial future, unless you want to have a great life when you turn 70, or if you can live to that age..

Buddy December 31, 2009 at 2:08 pm

Since every system has flaws, where are the flaws in your system?

Kevin December 31, 2009 at 8:45 pm

Great question.

I would have to say the greatest flaw of my system is the level of detail I go into on a regular basis. The budget we use for our finances is 54 lines. That’s a lot of things to track, but it works flawlessly because we have money set aside for a lot of things that a simple 10 line budget doesn’t have.

But people don’t like to fill out 54 lines.

In truth my system is similar to Dave’s. I just disagree on the credit issue. His plan is definitely good, but I would change that specifically.

Dustin Davis December 31, 2009 at 11:21 pm

That’s funny. I just went and counted and I have 51 virtual envelopes in our budget as well. You could call them lines or categories or whatever. I’m sure the concept is the same.

My system is also similar to Dave’s. It’s a virtual envelope system. I prefer debit cards over cash envelopes. I have written in detail why here: https://inzolo.com/blog/why-the-cash-envelope-system-didnt-work-for-us.php

Also, I have to admit that I do use an AMEX gold for my business and I just ordered an AMEX to use at Costco for groceries and gas. Why? 1. Because I get more cash back using it; 2. American Express has a nice OFX server that allows me to download transactions quick & easy in Inzolo; 3. Using Inzolo, I hardly even know I’m using a credit card.

Eric January 3, 2010 at 12:24 pm

We specifically went with a pre-paid tuition plan to keep our son from BORROWING…it seems backwards to me that I would want to be out of debt but should have no problem allowing my son go through the same financial headaches. The cost of tuition increases dramatically every year and he is ten years away from attending college. Given that the minimum wage increases are fought every single time they are mentioned, I can only assume that minimum wage will rise, maybe, a paltry two dollars in those ten years. So against what seems like every financial planners or get out of debt guru/pundits better judgement we fund our retirement plans (me:15.8%, wife:10% , tuition plan ($553/month), our sons savings account ($50/month), his investment account ($50/month), investment account ($150), savings (5% net from each of our paychecks). Even though the software program I use debtinator (http://www.bassetsoftware.com) tells me that the prepaid tuition is 14.07% of our debt load I need only look at the number of lines we have for debt, 21, and see that 10 of them are student loans totaling ~107k. Doing calculations for meal plans + room and board for a state university tells us that it could cost 69K in ten years for a four year stay. Personally, I want to break the middle-class cycle of retiring broke (which I hope we are on the correct path) but more important to me is the middle-class cycle of burdening our children with loans and debt and if that means I can’t save 20+% for retirement for another 7 years, so be it.

Credit Card Chaser January 5, 2010 at 1:12 am

Glad that you are able to tell it like it is. I recently wrote out a piece detailing the 2 areas where Dave Ramsey is absolutely dead wrong and here is proof: http://www.creditcardchaser.com/dave-ramsey-credit-cards-i-love-ya-dave-but-you-are-dead-wrong/ Overall though, I still very much agree with 90% + of what he says.

Dan January 12, 2010 at 2:21 pm

Let me suggest that before you critique someone’s philosophy you learn what they believe. I don’t know if you just glossed over his baby steps or simply skimmed through one of his books, but whichever it is, you are not understanding what Dave Ramsey suggests people do with their money. I have been listening to Dave’s radio show for a decade and his tv show for a couple years. Your first beef is legitimate, however, Dave Ramsey does not preach that you always pay off your debt smallest to largest. He agrees with you, that if there is a LARGE discrepency in the interest rate, And if the larger interest rate balance is SIGNIFICANTLY higher, then yes, you should attack that first. While this does happen, this is less than 10 percent of the cases out there. Second, 15% is not a rule for retirmement but a rule of thumb. So your point again is noted. However, to say that you would borrow on your children’s education is not something Dave would subscribe to. There’s ALWAYS a way to get a kid to school with cash or some other avenue without taking out a loan. You must have a plan. If you are taking out loans it probably means you didn’t have a plan when your kid went to college. Hence, you needed to borrow the money. Your third beef just doesn’t make any sense. Dave Ramsey is giving advice to people as a whole. You may say that you can handle credit card payments and pay them off every month, but so does 99 percent of everyone!!! And the simple fact is that almost everyone who says they can wind up carrying a balance at some point, be it credit cards, a new car, etc. THe point Dave is making is that although there are people who may be able to handle it, the RISK is not worth the reward. Because once you start putting $500 dollars on a card for small things which you pay off, this can quickly turn into $1000 or $2000 and eventually that nice new car you always wanted. The reason 100 percent of the people who are in debt right now are in debt, is because they took thata first step on that slippery slope and now can’t get back up the hill! So while there are a few who can manage to handle this, 99 percent of people cannot, and that is the cruz of the entire debt problem. You can’t simply say, “Everyone who can handle making monthly payments go ahead and use your credit card or finance a car”! Why, because even most of them who can encounter untimely tragedies, which you are fortunate enough not to have encountered! So don’t think you are simply smart enough to handle debt, it’s more likely you have simply been mucky enough to escape the risk and bad luck 🙂 Medical emergencies, and other emergencies, loss of a job, anything can cause devestation and push you to the bottom of the hill if you’ve taken that first step. My house was destroyed by water and the insurance company decided they didn’t want to pay. I owed close to $300,000. I was able to make payments, but now I had a house with close to $200,000 in damages and wasn’t worth anything! I could handle my debt, right?!! Nope. It may be a one in a million circumstance, but they happen to people every day. I had to file bankruptcy. if you have no debt, you will never be in debt to anyone. Is your $400 a year worth the risk? You may say yes. But those of us faced with the realities of life say different.

Kevin January 12, 2010 at 2:40 pm

Dan, you rambled. I’m going to try and hit some of your points, but you’re all over the place.

You are like every other Dave fanatic. That’s fine, but you’re following him like only pure truth and genius come from his mouth.

Dave’s a great guy (I’ve said this before), but he isn’t God. He makes mistakes, too. His plan is not perfect.

His system is designed to get you out of debt. Yes. But it is also designed to make him money.

I don’t have any kids so your “you must not have had a plan to get them through college” doesn’t make sense. Then again maybe you were speaking in generalities, at which point I would agree. Planning is a key to financial success. But that having been said there are dumb parents out there that would sacrifice retirement to pay for college — that is the mistake I am pointing out.

I think it is a stretch to go from using a credit card like a debit card by paying it off every month (Dave loves debit cards) to suddenly buying a new car with financing. That’s a huge jump.

Yes, 100% of people in debt are there because they took the first step. But I still think you’re stretching. It isn’t the first step — it is the first uneducated step where people assume it is free money.

If 99% of people can’t handle using a credit card like a debit card… that sounds like the perfect market to have an education product to help people get over that hump. My major beef is that instead of teaching this uneducated market that could use his help, Dave teaches them fear. Don’t use credit, it’s bad, it’s evil, etc.

If you have a solid financial plan in place including a nice emergency fund, proper insurance, etc. AND you use your credit card like a debit card.. there is no added risk.

You say I am lucky. I say I am working a smart financial plan and I am prepared. Big difference there. But since you are a Dave fanatic who fears credit I can see how you would think I am just lucky.

You mention your insurance company not paying for damages. $200,000 is a large amount of money for them to not cover. What was the cause of the damage? Why didn’t you sue them? Did your policy prohibit coverage for the type of damage?

I sure as hell would sue if it was covered and I lost $200,000. To do otherwise would be foolish.

Is $400 worth the (no additional just like a debit card) risk? Absolutely. Because it isn’t a risk.

JoeTaxpayer January 12, 2010 at 3:41 pm

Dan –
From Dave’s site:
“Myth: I should pay off the debt with the highest interest rate first to get out of debt quickly. Truth: You should pay off the smallest debt first to create the greatest momentum in your debt snowball.”
For me, the issue with Dave is that he makes statements as though they are gospel. The above statement can be modified to get his point across:
“Your math is right, but my experience is that knocking off the first few small debts offers a moral victory and increases your chance of success.”
See? I can concede that life is not about numbers 100%. But Dave can’t choose his words to imply anything short of Papal infallibility. So I get emails telling me that I’m wrong, that “pay high rate first” is wrong, per Dave.
Dan, you owe $4000 @ 5% and $5000 @ 24%. That’s all your debt. Which do you pay first?

On a lighter note, two people in $400K homes. Joe owes $450K and has $450K in his 401(k), Dan owes nothing, just paid it off, owes zero. A flood wipes out both homes, insurance won’t pay a cent. Whom would you rather be?
(Ironic that floods are acts of God, no?)

Dustin January 12, 2010 at 4:13 pm

Your lighter note… is that a trick question? Maybe I’m missing something, but I’d rather have my home paid off. At least that way I am at ground zero after the damagers. If I were in debt I would continue to have to pay on a home that was destroyed. I would have a hard time affording another home with those kind of payments. The 401K obviously wouldn’t cover the bill be the government would take half of it.

JoeTaxpayer January 12, 2010 at 4:25 pm

You are a better man than I am. (this is a sincere complement)
Me, I’d walk away from the mortgage, and rent for the 7 years it would take to fall off my credit report. Mortgages are non-recourse loans in most states, the bank won’t go after you, just take over the property. And I’d still have a full up retirement account.

What about the earlier part of my reply?

Dustin January 12, 2010 at 4:36 pm

Yeah, I wouldn’t feel good about just walking away from something I have signed my name too. Either way it would hurt. I would rather have the hurt of losing the house than walking away from a debt.

I think Dan already addressed the first part of your reply:

“Dave Ramsey does not preach that you always pay off your debt smallest to largest. He agrees with you, that if there is a LARGE discrepency in the interest rate, And if the larger interest rate balance is SIGNIFICANTLY higher, then yes, you should attack that first.”

At one point I had owned about $4000 on a car at %4 and about $11,000 on a credit card at 9.5%. I got a tax refund of $4000. That was the real test to see which way I would go. I decided to take Dave’s advice and pay off the smallest amount. I really do think it was helpful to know a whole debt off my list. It’s all paid off now.

But, like I said, I don’t follow everything. I have an AMEX gold card for my business. I use it to pay bills I pay anyway. I generally use the points to get Home Depot gift cards as we are always remodeling. Every $2500 I spend is $25 off at Home Depot. 🙂

I spent four years paying off debt and building an emergency fund. I’m not going back into debt. But with my budget system, I can easily handle using credit cards as tools.

JoeTaxpayer January 12, 2010 at 4:42 pm

Yes, you quote Dan, but I quoted the Master Himself. I’ve never seen a quote from Dave offering what Dan suggested. Of course, I’d also concede that as the rates are closer, it makes less difference, but I’ve not seen Dave qualify his advice based on rate spread. Lowest Balance first is all I’ll seen and all I find on his site.

Dustin January 12, 2010 at 4:50 pm

I don’t think I have seen it in print, but I have heard him say it on the radio.

On a side note, I have also heard him suggest to people that they surf for cards with lower rates or zero interest for a year while they are paying them down, but you’d probably have a hard time finding that in print too.

I actually did that. After paying off my car, that $11,000 credit card debt was later moved to a zero interest for a year card and I had it paid off before I paid any further interest on it. I guess I had my cake and got to eat it too.

Really, of all the financial gurus out there, I think most people with get the greatest mileage by following Dave Ramsey. Guys like Ric Edelman & Suze Orman really screwed me up with their bad advice.

Luis January 31, 2010 at 7:30 am

I had being managing debt for the last 5 years. I own a Real Estate and Mortgage Company in Miami Florida.
Business now is how can I pay my bills ? where should I invest my money? I help my clients for free so they come back or refer me people.
I agree with you 100% one Dave.
I love the use credit cards us a tool. Creating a 5000 emergency budget paying 20% on Credit card balance/ interest equal $1000 wasted a year. That in morgages under 200,000 is 7 years of more payments.

Debt is the best investment we can do. we just need to read, learn and do it do it do it.

Finance February 8, 2010 at 3:59 am

You may say that you can handle credit card payments and pay them off every month, but so does 99 percent of everyone!!! And the simple fact is that almost everyone who says they can wind up carrying a balance at some point, be it credit cards, a new car, etc.

JoeTaxpayer February 8, 2010 at 8:49 am

Finance –
“Approximately 74.9 percent of the U.S. families surveyed in 2004 had credit cards, and 58 percent of those families carried a balance. In 2001, 76.2 percent of families had credit cards, and 55 percent of those families carried a balance. (Source: Federal Reserve Bulletin, February 2006)”

More than 40% of cardholders do not carry a balance. With out a doubt, credit card debt is a ‘bad thing’ for those that carry it. However, in the world of personal finance blogs, numbers have meaning and 99% is not quite right. When 40% are using cards for convenience, fewer ATM trips, fewer checks, fewer bills each month, and whatever reward/cashback they get, Dave’s sweeping statements about “no responsible use” of credit cards is simply wrong.

Luis Eliminate Debt February 8, 2010 at 10:52 am

I agree with Joe, if you blog, you know how to handle Credit cards. I’m a Financial Coach,
I meet with families every week I see the 40 % with 30,000 available on credit and they are nor running to the Mall to see how to use it. And yes today many are with financial problems because they didn’t lower they expenses and the money was not coming in as before. So we charge it.

My biggest issue with Cash systems is that if I have a balance of $5,000. at 25 % is $1,250 that I will pay in interest every year. Till I get the $ 5000 to pay off this credit card.

That is a extra-mortgage payment that is 9 years off your 30 year mortgage .

12 x 1250 x 9 = $135,000 dollars Tax Free that I’m giving to the bank???? No Way

Before I do Baby STEPS I will do Adult Steps and run my expenses through my credit card with a budget. This is what I mean:

1) Week 1 get Salary put the many on credit cards Group A
2) week 2 get Salary put the many on credit card Group B and use Group A credit card to cover living Expenses.
3) Week 3 get Salary put the many on credit cards Group C and use Group B credit card to cover living Expenses.
5)) Week 4 get Salary put the many on credit cards Group D and use Group C credit card to cover living Expenses.

If your expenses are $ 5,000.00 you will pay 0 Interest on your credit card. So let’s say you were paying $250 a month on Credit cards, then in 20 months you will be DEBT FREE on this one.
Besides all the Rewards and Cash back you will be earning. You will also build your credit and will be able to fight credit cards to lower your interest.

They key is your full payment of 250 will go to principal no $240 to interest and $ 10.00 to principal. You will be Cancelling interest with Cashflow.

I will say, good for anybody that is giving financial information, and making families think.

jerry February 27, 2010 at 9:26 pm

All these money experts its amazing how many. I work for banks on foreclosures I’m the guy that comes and changes the locks and cleans up the mess from all levels of income. Walk away if you have any brains the banks have no heart or morals so why should you. I hear all sorts of reasons why the people lose their home so I say to all you experts you can think you can read the future but only god knows for sure what the next second brings so plan all you want with your money it won’t really do you any good. And Dave Ramsey should be ashamed of himself he says he’s a man of god trying to help people. He’s getting rich off people who are worried about the future of money. Let me remind all of you he got debt free in bankruptcy court not off his line of bull. He now talks smart because he has a bunch of christians thinking he’s doing gods work. Talk about sad.

John March 12, 2010 at 10:15 pm

I’ll admit that I haven’t read every message here, however, I think some things need to be said.

1. Dave’s plan is not a “one-sizie-fit-all plan.” It is a great plan for the average person. Dave doesn’t say anything he wouldn’t do himself, except when he “allows” people to take out a mortgage. Although Dave is a multi-millionaire, he wouldn’t borrow money to buy anything. He bought and paid for his building in cash. I believe that was either $5m or $6m.

2. I’ve never heard Dave advocate anything about paying off anything but the smallest debt first, regardless of the interest rate. While you bring up the flaw in his method that you would pay out more money on his plan with your example above, the math isn’t what we’re worried about here. We’re trying to make a lifestyle change. We’re changing our bad habits and getting out of debt. And if we were trying use proper math, we wouldn’t have spent more than we had in the first place.

3. Credit card companies suck! Just as I will never give a dime to a democrat, I will never give a dime to a credit card company (ever again). They are horrible people who have nothing more in mind but getting rich off the stupid little people. My last debt was with Bank of America on my house. After paying off my house in 8 years, I have vowed never to get in debt again. I past up a fantastic deal on a van recently because I didn’t have enough cash to pay for it and keep enough in my emergency fund. I could have borrowed but it goes completely against my principles. It may, in the long run, cost me more money but it won’t worry me. If I lose my job tommorw, I’ll still have more than 10 months worth of money to live on, instead of a nice van and 2 months of cash to live on. If I lost my job, I’d take about a $80k hit if I had to start over. It’s not worth the risk.

4. To the idiot who thinks Dave is some sort of hypocrit. You don’t know what you’re talking about. Yes, Dave did file bankruptcy, however, he stil paid everyone back. What you suggest about just walking away and having no heart or morals because the banks don’t is ridiculous. At what point do you say NO? I won’t walk away. I will pay my bills. I say that everyday. I was given nothing and I work hard, pay my bills, and true, GOD only knows what’s going to happen next. However, I still have my own free will and I choose to do the right thing. Let me ask you this: Do you work for free? Then why should Dave. He still puts in his time and effort and he should be paid for it. When he was unknown and only on the radio in Nashville, and typing on his little typewriter at home, and selling his books out of the trunk of his car, did you gripe about him back then? Did you care that he was helping people learn how money works and how to get on a plan to help themselves? Then don’t worry about him now. You continue to do your work and let Dave continue to do his. Hopefully, someday he’ll put you out of business. That won’t be sad!

5. To Kevin, the author of this blog. Fantastic blog. I really mean it. You are passionate, sincere, caring, genuine, usually right, and sometimes wrong.:-) But it’s ok. When you’ve found to be wrong, you’ve admitted it. When there’s a difference in philosophy, you’ve given the other person their due and just agreed to disagree. You never belittle and that’s a good thing.

Doub March 17, 2010 at 8:13 am


Dave Ramsey preaches common sense…spend less than you make!!! if you need to pay someone money to hear that, then you got problems….

Kevin April 5, 2010 at 2:26 am

Thanks for the blog. I still side with Dave Ramsey on all of those points. My favorite argument Dave makes in regard to paying off your smallest debts first instead of the one’s with highest interest is that if one was good at doing math he/she wouldn’t have borrowed money anyway. Who in their right mind would borrow money at 24% plus? Someone who has a bunch of debts with high interest payments was not thinking through the math to begin with.

JoeTaxpayer April 5, 2010 at 8:29 am

Kevin – my comment of Jan 12 is worth a re-read.
Your quote here, for me doesn’t follow. People get into trouble for various reasons. The smartest guy in the room can get into credit card trouble no matter how big his emergency fund was, even if he were debt free prior. But that’s all speculation.
My issue is that Dave has a way of dismissing the better math, making assumptions that may not be true.
I owe $5000 @ 8%, and $5000 @ 24% which do I pay first?
According to Dave, if the $5000 is spread $1000 over 5 cards each, you pay those first. In my experience, cards with lower rates have always had a bit lower credit line. So when I was young and stupid, this example wasn’t made up, it was exactly how my card rate/limits looked.

Financialbondage.org May 17, 2010 at 5:24 am

Dave does say stop using credit cards and for good reasons. Most Americans abuse them and have too much debt on them. Credit card debt and auto loans are why most Americans are BROKE.

Jenna May 25, 2010 at 4:42 pm

If Ramsey is such a great guy how come he is making millions off of other folks pain.

Let’s take his entire platform into account here.

#1. Stop using your credit cards
(but come to my financial peace university , opps I will only need your creidt card for the deposit )
#2. Let’s watch his video on how to get a car with cash (opps he skips about three steps here that are massive and does not explain how we leap frog over them when money is soooooooooo very tight)
#3.My emergency fund of $1,000 (opps ther fridg, just broke as well as the air conditioning and the car needs brakes plus money is tight)

So given that I am working three jobs have sold off all my clutter to the point that my home looks like no one lives there. I can’t make my HOA fees any longer , so I feel certain to be out on the street soon.
And oh by the way none of this stuff works when income levels are at best for a working couple at $28 for her $48 for him two to three kids cost an average of at the lowest $30K per year just to feed and cloth them not to mention the etc…. Bare bones budget that we came up with for two adults is $60K add the children and the numbers never add up no matter how many tricks or tips you try to Baby Step

John May 25, 2010 at 8:07 pm

Well Jenna, it sounds you have a few issues with Dave. You sound angry for his success and that’s silly. If you are having a hard time, don’t blame Dave.

Dave makes millions from everything he has built. He did all of that without government assistance. He worked his tail off and paid back all of his debts from his previous bankruptcy. So yes, he makes a whole lot of money, unapologetically, from people too stupid to know how to handle money. This is something with half a brain should know how to do. Of course, if you don’t make much money then things are different.

To your points:

#1 If you use your credit card on his site, then you are being dishonest, not him. If you read his disclaimer here —> http://www.daveramsey.com/store/faq/cFAQ-p1.html#debitcardpolicy.

#2 I don’t see any issue with the video of buying a car for cash. Recent statistics show that one-third of car buyers sign up for a six-year loan at an average interest rate of 9.6%. Among these buyers, the average price of the car is just over $26,000. This means that one-third of the cars you see on the road are dragging a $475 payment behind them!!! So, if you save your money up for 10 months, you’ll have $4,750 to buy a car. Then, you save up again for another 10 months. You sell that first car for, say, $3,500 and then add the $4,750 you just saved and you can buy a better car for $8,250, and so on. The numbers will be a little off for different things, but you should be able to understand the concept.

#3. The minimum you should have in your emergency fund should be $1,000. If 2 or more bad things happen financially, then you’ll have to make payments. That’s just life.

And you’re right, this won’t work if you’re not making enough money. I don’t want to be critical of you personally but it has been my experience that when people are making very low wages, even when working 3 jobs, it goes back to choices they made in their past. You actually sound like a friend of mine. She’s going to suffer financially by having a house she can barely afford because she doesn’t want to live in an apartment she can afford. The people are “gross and nasty” and “scummy.” But you can only afford what you can afford. Life isn’t fair and you do the best you can for your family.

In all honesty, I really hope you do better in life so you can live like no one else. His plan has worked wonders for us.

Brandon Connell May 25, 2010 at 8:16 pm

John, going after Jenny tells others that you are not living in the real world. There are people in bad situations out there who didn’t do a thing to deserve it. And by you saying that it must have been because of past choices shows that you have no clue and you were probably born with a silver spoon in your mouth. I understand that some things she said could have been better researched, but you can have done the same.

John May 26, 2010 at 8:57 pm

Brandon, I was only “going after” Jenny because she made the comment. You don’t know Jenny so you have no idea what you’re talking about. Think about some of the people you know in your life who are in “bad situations.” Why are they in those situations? Why have they decided to stay in those situations? Why can’t they make $30/hr? What from their past has lead them down the path they’re on? Why are they destined to work at McDonald’s for the rest of their lives or to live paycheck to paycheck? If they are honest with themselves, they will admit that they made a choice that lead them astray. I will say, however, that there are exceptions. But I will also say that they are VERY RARE.

By the way, don’t pretend to know me. If I didn’t give a crap about Jenny, I never would have written her back and wished her a better life. I’m hoping she will realize that Dave isn’t the reason she’s broke and it does no good to bash him for making money. By the way, whether one is born with a “silver spoon” in one’s mouth has no bearing on how one will turn out in life. That shouldn’t need to be said. You know, it was once said by a wise man, “It is better to keep your mouth shut and let people think you’re a fool than to open it and leave no doubt.” Don’t pass judgments on people. You really do sound foolish.

Mr. K-State May 26, 2010 at 9:44 pm


As a Financial Planner, I can tell you are the type that has about 10,000 in an IRA, and think youare financially independent….trust me, if you listen to DAVE RAMSEY, you are a moron, and will end up with problems down the road…good luck to you and your family john…You will need it!!

John May 28, 2010 at 9:41 am


That’s really sad. You have no idea what you’re even talking about. How about I go ahead and tell you about my financial situation, like it’s your business, and you tell me what kind of problems I’ll be having.

I’m a married 45 year-old man with a net worth of $675,000. My $155,000 house is paid for. I have 2 paid-off vehicles and no debt. My 8 year old has $26,000 in his college fund and my 6 year old has $12,000 in hers. Every paycheck we put $900 in total into retirement and college funding (11 paychecks so far this year equals $9,900!). My company puts in $2.25 for every dollar I put in. We’re in the Texas County District and Retirement System (Harris County). You can look it up if you’d like. We have to put in 7% and they match with 2.25 times that amount. Each year we are guaranteed to make 7% on the money (in addition to the matching funds). Last year, with overtime, I made in excess of $140,000. My wife is a housewife. Dave’s plan has helped me to get this far this quickly.

I don’t know. I think we’re in pretty good shape. Tell me where the pitfalls are? Where is the danger? Tell me about those “problems down the road.”

Brandon Connell May 27, 2010 at 6:47 am

Funny how you tried to turn it around on me but failed John. Basically, I didn’t pretend to know you. I knew you based on the crap spewing out of your mouth. I used to be one of those people who failed miserably. The fact is that even the people in the worst situations can get out of it with gained knowledge. It is a life journey to get there and some simply never do. Yes a silver spoon does make a difference. It is usually the rich kids that are taught about money at a young age and are ready to go it on their own when they make their own. That’s why so many of them commit suicide at the first signs that they go bankrupt. The rare breed you speak of are the new millionaires that get added to the list daily.

John May 27, 2010 at 7:13 am

Now you’re just boring me, Brandon. Suffice it to say, you should take responsibility for your own life and not blame others for your issues. if you’re intelligent enough to learn how to get food stamps from the US Government, you’re smart enough to educate yourself about money and how to get a good job. Or is that too much work?

Brandon Connell May 27, 2010 at 7:29 am

I’m done with you loser. I actually teach people rather than talk down to them. Thank GOD you don’t teach anybody anything. You just talk crap. Oh and by the way… food stamps and assistance is thrown at poor people heavily. It is viral marketing behind it. Learning about money is something you have to seek out. Stupid. Bye bye now.

Buddy May 28, 2010 at 9:12 am

Mr K-State,

First off, thanks for the insult. I’m surprised that someone as “professional” (and apparently psychic) as you would call people morons who happen to disagree with you. But I’m curious, what is so moronic about getting out of debt, living within your means, and investing for the future?

I hope you don’t treat your potential clients like you treat people on this forum.

JoeTaxpayer May 28, 2010 at 9:35 am

There’s an odd phenomenon on the net that lets us shoot insults when we get emotional about an issue. Unfortunately, it diverts the topic’s focus.
For me, I can only learn from those smarter (at least on the topic at hand) and if I sense they think me a moron, I find someone as smart as they are but with people skills.

Dave fits a niche. In one post I point out the shortcoming of the debt snowball, and link to a sheet spelling out in dollars and cents the delta. I also question the “no good use of cards.” Then it occurred to me. That no card thing, it’s like telling an alcoholic they should never drink again. And me walking in saying I have a beer with my dinner and have no issues. For his audience, the “never use a card” message is right for 99% of them.
So. Dave’s method’s regarding debt reduction are a positive for those who need him. Any reference he makes to an 8% withdrawal rate at retirement or 12% expected growth rate while investing are misguided and dangerous. We can quibble over the “correct” value of those two numbers, but growth at 8-10 (tops) and withdrawal at 4% give or take is closer to reality. People who disagree with me aren’t morons, but are welcome to show me why I may be wrong. (I have a wife, I know I’ve been wrong before)

John May 28, 2010 at 9:52 am

You are dead on, Joe. That’s exactly right. Have an intelligent conversation with someone without the name caling furthers your cause by far.

I agree about the numbers. Before this down time we’re having, every 10 year period had some positive growth in the stock market and the same could be said for 98% of any 5 year period. Not so anymore. The 10 year rule is gone. Unfortunately, you have some people out there with an agenda using this down time to exploit their thoughts and opinions, and it’s not based on facts. If they would do some research and compare apples to apples with Dave to contrast his numbers, maybe I would agree with someone else. However, I haven’t seen the apples to apples research. People are going have half cocked saying that Dave is a moron with no proof or research to back them up. Show me the numbers and the money!

JoeTaxpayer May 28, 2010 at 10:02 am

I usually don’t link back to my site, I’m here for the discussion, not to divert readers to me.
Is a quick article I wrote. What I did was to to pull the S&P chart from 1980 – 2000 and extend that line. 20 years of a beautiful growth line. Remember, the Yahoo charts are semi-log, so a straight line represents a steady year on year growth number. “10 more years” of the same or slightly lower growth and I’ve have been able to check out by now.
Regardless of the prior 10 or even 20 years, I’d never assume such growth rates.

Kevin May 28, 2010 at 10:03 am

I’m glad calmer heads have come out here. Thanks Joe for stepping in.

Generally speaking I try not to moderate comments too heavily, but I don’t like letting people throw insults around.

So good job, Joe.

Regarding Dave’s numbers, I’m not sure if you are inferring that I should provide additional data regarding his stock market estimates. With the last 10 years the stock market has returned almost 0%. (Of course that is assuming you were 100% invested in 2000 and didn’t add additional funds throughout the decade.)

JoeTaxpayer July 7, 2010 at 4:33 pm

Seeing activity here again, and just saw your comment above.
I’m not defending Dave. Just providing context. In the last few years of 1990’s, you had a 20 year run of 18%. So, I won’t guess what he was thinking, but 12% may have seemed reasonable. To me, the 8% I plugged in seemed good.

bob July 7, 2010 at 12:45 pm

Oh your right! Every book I have ever read about or every person that I have talked to that is rich has always said that their credit card points and bonus helped make them rich!


Kevin July 7, 2010 at 1:00 pm

So what did the books say? Did the books say it was the fear of credit that made them rich? I highly doubt that.

Again this ignores my main point on credit vs. debit. If you could earn $400 in free money per year and not change your spending habits one bit, why wouldn’t you?

These rich people you are talking about wouldn’t turn down a free $400, and they wouldn’t miss a payment and run into interest charges or fees. Just like me. It won’t make you rich, but I’d love to see why anyone would turn away a free $400.

bob July 7, 2010 at 1:11 pm

OK look, Its not that a “rich” person would turn down $400 but they know that $400 is not going to make them weathly and furthermore the reason that Dave talks this way about Credit cards is that what happens if you have even small balances on this credit cards and you loose your job or something happens to your health and your not able to make that one payment and you miss it? This is the typical scenario that causes some people to get into trouble with credit cards. If you never use credit cards and from a habit of paying for everything in cash and saving and having a emergency fund which is a separate account from your everyday checking account that you would use for any surprising expense you might face.

Believe me that if you got trapped into the above scenario you would think it was silly that you got a few hundred bucks for using the credit card that now has you trapped. You will have plenty of money if you budget and save and make your money work!

Try reading the book, ” The Millionaire Next Door” its a great read.

Kevin July 7, 2010 at 1:29 pm

I’m trying to decipher what you’re saying here.

1. You have small balances on your credit card, lose your job, and you miss the payment.

2. If you don’t use credit cards you will use cash, save an emergency fund, and be able to take care of any unexpected expenses.

3. If you use credit cards and start with small balances, you will get trapped. “Most” people get trapped this way. How many is most? Do you have data to back up that claim?

You’re assuming person #1 will use credit cards but not save an emergency fund. Why are these mutually exclusive?

Additionally if person #1 has small balances, why wouldn’t they be able to pay the card off out of their cash reserves? From what you’ve said it sounds like you’re assuming anyone who uses a credit card will automatically spend every penny they have and go into debt. I strongly disagree.

Again, my point is this: if you treat your credit card like a debit card then the above is not an issue.

For example: swipe your card at the gas station for $30 worth of charges. You go home. You adjust your budget and set aside the $30 specifically in your account to pay off the credit card.

You come home, make the adjustment, then lose your job. You take that $30 that was in your budget and pay off the card. It’s just like you had used cash or a debit card. You already have the money set aside for each charge. Otherwise, just like with cash/debit, you don’t swipe the card.

NotADaveDefender August 18, 2010 at 9:35 am

Hi Kevin,

I haven’t researched it much myself, but according to Dave, “most” people who use credit cards spend more (12% or something like that) than those who only pay cash at the same department store, restaurant, retail, etc. Again, that number could be wrong I did no research myself.

If a person only uses their credit card to pay other bills and pay off the balance every month, getting $400 to do so is a great bonus. I guess according to Dave, “most” people spend more than the reward thus losing money.

Having said all of that, I did use Dave’s plan to get out of debt and pay off my house, save for retirement and so on. I used a credit card the entire time and still have one. I too enjoy the reward I get just for paying my other regular bills using the card (I use mine just like you (Kevin) do.)

JoeTaxpayer August 18, 2010 at 3:55 pm

‘“most” people who use credit cards spend more (12% or something like that)’
As a student of the scientific method, I’d love to understand the data that supports this claim. Is there an actual study you can cite?
It’s funny to me that while the idea that one spends more on CC than with cash is almost intuitive, it ‘feels’ like a fair statement, there is never data to support the claim.
I charge nearly all expenses. Pulling out the business charges that we are reimbursed, it’s still nearly $4000/mo. When I analyze the bill, I see groceries – are we gaining weight, eating 12% more than with cash? I see gas – I know we don’t drive more or less for the fact that we charged the gas. Tickets for our next vacation. Would a check have changed that purchase?
This prompts one question – even if there a bit of truth in the “more on CC” belief, what would we find by separating the population into two groups, (a) the pay in full group and (b) the carry debt month to month group. Does the first group have the same issue? Mind you – I’m not saying the initial claim is false, only that I have never seen any data to support it. A quote with zero support is strange to me.

NotADaveDefender August 19, 2010 at 7:46 am

Hi Joe,

“Is there an actual study you can cite?”

Nope, that’s why I stated twice that I did no research myself. Just recalling what I heard on Dave’s show. The 12% is probably wrong as well.

“When I analyze the bill, I see groceries – are we gaining weight”
I don’t know if you are gaining weight or not, but I do believe the point to be a valid one. Ignoring gas stations or vacation tickets, I think the only places where one could overspend would be retail stores, as mentioned in my original post. After analyzing your grocery bill, do you analyze the items purchased? Are you the shopper in your family? If not then just looking at a bill is not a good way to see how much “impulse buying” took place. I think that’s Dave’s point. If you had a planned shopping list and only enough cash (with a cushion) to purchase those items, it probably would cut down on impulse buying.

Who knows? I was merely trying to point out another reason why Dave is opposed to Credit Cards. I know personally I impulse at the grocery store sometimes and I always do it with my credit card.
Maybe someone has data to support Dave’s claims, I have never bothered to look.

JoeTaxpayer August 19, 2010 at 9:09 am

Sorry, I know you said that.
Until the claim is substantiated in a study that’s applicable to the real world, I dismiss it as non-scientific.
Now, I don’t dismiss the premise itself, I just repeat that Dave addresses a certain audience, one for whom a credit card is analogous to a drink for an alcoholic. Those with such a track record of bad spending are very likely to spend more on cards that with cash if only because the unlimited credit is removed.
But it’s also intuitive to me that one who pays 100% in full each month is not his target audience, and far less likely to be a “spend more on cards” person.

I can go on all day, but let me give one example. The concept of shopping with a list. First it presumes a level of organization that many simply don’t possess. I am the shopper. I go into Costco and see a demo’d item that I buy, of course it wasn’t on the list. Does the controlled experiment say “got ya” claiming that’s counted as more spent on credit, or does it see that I just spent $10 on dinner when the Mrs would otherwise have dragged me to a restaurant that night? $65 saved?
When I grab some (needed, say TP) item that’s half price and stock up, it’s an unexpected expense, but as used over the next few months, a bottom line savings.
I see the claim over and over. It’s intuitive, I agree. I just would like to see how it plays out in the real world, I suspect it doesn’t.

NotADaveDefender August 19, 2010 at 10:47 am

Well said. Any study can twist any data it wants to form an expected conclusion. I too stock up when TP/Diapers/Baby Wipes are on sale which winds up lowering our grocery budget next month or longer. Budgeting with cash would not allow me to do so. In the long run I win, but according to the study I am a horrible impulse shopper.

dan August 19, 2010 at 5:01 pm

The “problem” with that is if you’re doing a zero based budget, there isn’t money available to pay for those things. Even if you put them on a credit card and pay off and the end of the month, you still will have not enough money.

I’m not saying what you’re doing is wrong mind you, but I believe it has to do with the person or family. For example, I’m in a financial position where I can’t get any more than what I budget for because the money just isn’t there. Now if you have extra (I don’t intend this to sound snobby) laying around to spend on extra essential non perishable items to save you money in the future, I don’t see anything wrong with that.

I’m teaching an FPU class this fall and really, it’s wonderful helping these people get out of debt (of course, I’m still in debt with student loans) and one way to get them out of debt is to stop them from impulse buying with a zero based budget, and also stop them from using credit cards because it can lead to…I don’t want to say impulse buying because I don’t want it taken the wrong way…buying extra essential items when they can’t really afford to pay for them that month.

I hope that makes sense. Everything that’s been written makes sense to me and I thought I would add more own two cents.

Buddy August 23, 2010 at 2:15 pm

I believe this is the study to which Dave is referring…

JoeTaxpayer August 23, 2010 at 3:30 pm

I need to give it a full, slow read, but I see it’s a lab experiment. Done with students.
What if I worked backwards, asking people to budget by category, and then observed how they performed with or without cards? I am still open to the fact that the “more on card” theorem may be true, but I don’t see that a lab experiment can be considered supporting evidence.
I have my own – J2 (As in Jane 2.0, my daughter) will clearly treat a card different than cash. She’ll pull out the Starbuck’s card and buy us both a drink, but isn’t as likely to do that with cash from her purse. Two groups, one handed a $100 card or voucher, the other $100 in $10 bills, will spend it very differently.
I can also tell you that when I was young and stupid, I charged like it wasn’t real money. But, as an adult paying the card in full each month, the spending looks very different.

Dan August 23, 2010 at 7:07 pm

Two things:

1) That was a really interesting study. Although study 1 showed that it does increase spending, study 2 I believe showed it didn’t matter. It was very interesting to read though.

2) This is really the first supporting evidence of this idea I’ve read. I realize it’s only one study and being a science teacher, I know that this is just a lab experiment and once it’s “proven” in the lab setting, it should be also proven the “real-world” setting.

But still, interesting read and all here should read it.

FLNonny August 26, 2010 at 9:26 pm

The credit card “issue” is NOT flawed. Research shows that those with credit cards spend 12-18% more when using a credit card vs cash. And sadly, the VAST majority of Americans do NOT pay off their balances by the end of each month. Dave’s program works and his success is warranted. My FPU class of 33 students (mostly couples) paid off $35,000 in debt by the end of the last week of class. That is AMAZING! I STILL get those who run up to me to say “thank you” for the course. My ex and I paid off $18,000 in debt after reading all of Dave’s books on tape and then taking the class. The debt snowball is about attitude. People who see the small debts going away are more likely to feel good and continue paying off debts; we are an instant gratification society and Dave understands that how we “feel” affects our success (or failure). Dave’s success is proven. When you each come up with a BETTER plan for the average joe (and have the stats showing your success), THAN feel free to complain about Dave’s plan:)

Joetaxpayer August 26, 2010 at 9:47 pm

FLN – you repeat the same statistic, cite a study that doesn’t exist. I find it curious that when such things are repeated often enough, they become accepted as fact, going unquestioned. Just like the Einstein quotes about interest or taxes.
I’m not complaining about Dave, only about the lack of supporting sources for this quote whether uttered by Dave or you.

NotADaveDefender August 27, 2010 at 11:21 am

I listened to my FPU CDs again and the specific study Dave refers to is a study by Dun and Bradstreet. After researching it myself, just via Google searches and their website, I could not find any such study. I did find a blogger that supposedly contacted Dun and Bradstreet with no results either.
Someone did post an interesting Carnegie Mellon study in the comments of this post about cash vs. credit purchasing that does somewhat support the claim.

I really can not believe that Dave Ramsey would just make something completely up and site a bogus study to support his teachings. I would imagine such a thing would leave him open to a lawsuit. It would just be nice if he would post all his referenced studies on his website to help with his skeptics.

Joetaxpayer August 27, 2010 at 3:16 pm

Interesting. The study concludes there is no significant difference.
I don’t feel it supports my position however, as the study was based on lunch costs. For a moment, let’s consider the conclusion if the data clearly showed a 40% higher spending on cards. Can that be used to extrapolate overspending on day to day purchases?
I don’t hold Dave liable for such claims, when a statistic is quoted enough, it takes on a life of its own. And no, I don’t expect him to fact check this type of quote, it’s nothing that would lead to a suit.
On the other hand, the claim is quaint, and appropriate for his audience. His following (in general) is the portion of the population that should stay away from debt, period. For them, avoiding the huge risk of falling into high interest debt is worth the tradeoff. I gain the 2% kickback, extended warranty, and a bit of convenience.

Still as a closet statistician I look forward to any more papers on this topic.

Dan August 27, 2010 at 3:53 pm

I would like to point out, with all the comments about who his audience is supposed to be, that this isn’t just aimed at the terribly in debt. Yes, this portion of his whole class curriculum is, but it’s also aimed at everyone.

For example, he teaches about how to create a zero-based budget. He teaches about how to invest wisely. He teaches about having an emergency fund, which I think everyone should have.

So while this one lesson is for more in debt people, say people with 40k or more of debt including some credit card debt, he is also aimed at all other people as well.

Ron August 30, 2010 at 1:09 pm

I have to disagree with you on how Dave does the snowball debt. if you know anything about the people of this country, we have a high frustration level when we don’t see results. That is why the martial arts adopted the colored belt system for Americans. You see progress and you continue (baby steps). The only advantage to a credit card is if you buy using one and the product is a lemon or doesn’t arrive you can disputed the charge, other than that most people don’t have the discipline to use, then pay without running it up. Finally a lot more places are giving cah discounts for not using a card that they have to pay 3% to 6% for taking your card.

BobMB September 29, 2010 at 1:19 pm

Your premise that you get $400 in cash back is fiction. In reality, we all spend more using CC/debit than we would if we had cash. There are no savings.

I track all my spending, and this has been the case for me whether I used a debit card, a CC, or cash. It is supported by other studies.

The best test subject was my wife… her exact quote of cash only… “it hurts to spend cash.”

My cash only method equals more cash in my hand at the end of the month. I don’t find it inconvienient.

All finance is “personal” and 98% of the people not using some method of budgeting are lazy and unfocused. That also goes for the people that pay off the CC each month.

Kevin September 29, 2010 at 1:24 pm

Bob, fiction… interesting take.

Strange, I could show you where I got $400 in statement credits over the last few years.

Then I would show you our budget and how we haven’t busted our budget even though, gasp, we use a credit card.

To me it doesn’t really hurt to spend cash. Not if I’ve planned to see it. Now, granted, it does hurt if I’m having to spend it unexpectedly and I don’t have it planned in the budget.

So your cash only method leaves more in your pocket every month. That’s fine. I can respect that.

But I think you should also respect that my credit card (and now, rewards checking debit card) methods puts a lot more cash (that I didn’t have to work to earn) in my pocket every year (and month, for the debit rewards).

Steve in W MA September 29, 2010 at 2:47 pm

I’m willing to believe that thos people who don’t follow a budget and use their credit cards (which means most of the credit card using population) most likely spend more money using the cards than they would using cash. However, that is something of an unfair comparison, because the kind of cash spending advocated by DR is actually a form of budgeting, not just whipping out whatever cash you pulled out from the ATM this morning.

I don’t think that those of us who plan a monthly budget and monitor it through the month fall into the same trap, whichever form of payment we use. When I’m budgeting, I spend between 180 and $200 a month on food. Period. Regardless of means of payment. I actually will often double up on grocery store gift cards when I get a double cash back offer on my credit card, then use the gift cards to buy my food for the next 3 months. This is not mindless spending I’m talking about here.

The cards are only used for things that are already in my budget.

Steve in W MA September 29, 2010 at 3:26 pm

Let me add that I have been working behind a retail counter for over 20 years. Without a doubt, the larges spenders, buying stacks of fairly impulsive purchases, are using credit cards. Cash spenders tend to select their purchases with more care and limit their spending more. This is what I see every day, albeit without knowing these people’s financial picture.
Those who actually have cash envelopes are rare and the money seems to squeak when they pull their cash out. Again, anyone who is using a cash envelope is, by definition, following some type of budget, however informal.

My conclusion in general is that if you want to maximize your savings and the use of your dollars, 1) make a monthly budget and track your spending to keep on top of it if you are not using the cash envelope system. 2) do what you have to stick to it. Whether that means using a cash envelope or it means using your credit card within the bounds of your predetermined budget.

Steve in W MA September 29, 2010 at 3:30 pm

One big plus of using the cash only system is you can never go into debt. Because ot’s impossible to go into debt when you are spending only the money you already earned and have in hand.

Simple facts like this are the real reason for Dave Ramsey telling people to go all cash. The fact is, you can’t do that much harm to your finances, even if you’re totally disorganized and have not much of a plan, if all you have to spend is cash. The most that can happen is you can go broke. Not be broke and up to your ears in debt at the same time. So you will be better off than a similarly disorganized and planless credit card user.

Kevin September 29, 2010 at 3:36 pm

Great set of comments, Steve. Thanks for stopping by.

I think people are having problems distinguishing between people who spend without a care on a credit card (because they are financially ignorant) and people who spend on a credit card, but with a plan.

I might be one of those people that come up to the counter and look like I don’t care when I swipe the card. Sure. But it’s because I already know how much I can spend, I know I’m under my budgeted limit, so there is no stress with my spending.

While I agree that going 100% cash is a great financial barrier for many people… I still think Dave could come back around at the end and show people that using credit responsibly isn’t all bad.

In fact there was an episode of his show on Hulu that I watched last fall when I had the flu that did just this with a caller. The guy called in, said he agreed with Dave, but that he didn’t agree with his credit policy… because he had used credit responsibly, was running multiple businesses (that he owned), and was essentially retired.

Dave smiled and said, and I’m not quoting exactly, in a happy tone, “Well of course, you obviously have a handle on everything and wouldn’t get in trouble with those (credit cards).” So I think deep down Dave knows there are people, like me and several commentors on this post, that can handle credit card use just fine.

Nicola Dupont September 29, 2010 at 10:21 pm

right On… if you can handle credit card use them…
if you can’t cut them.

Dan October 9, 2010 at 7:22 am

Just thought I’d post this link. It is dave talking about what we’ve been talking about. He does use that study to discuss it and I realize we may not have found that study yet, but he brings up interesting points towards the end about the credit card company screwing up the payment you make on time and it affecting you.


I know that I use one to buy gas. That is all and my thought is I don’t spend more on gas because I have a credit card. I don’t go to the gas station and say I’m going to fill up twice today because I’m spending on a credit card. He does though make some points for people that use them at grocery stores only and things like that.

Pat Flanakin October 12, 2010 at 8:38 am

Mr. Ramsey may be a Christian influence, but I do not believe a “good” Christian influence. Those that know the Word of God are taken aback by some of his recommendations; however, I do not expect him to seek to evangelize his audience, therefore, he must compromise some of his beliefs to make his recommendations palatable. Some examples of areas the Bible addresses which I think that Mr. Ramsey is either wrong about, or providing bad advice: having zero debt no matter what, tithing/giving for whomever regardless of faith

Dan October 12, 2010 at 10:15 am

I don’t understand your comment.

First of all, Dave doesn’t say all debt it wrong, he says house mortgages, as long as you’re working to pay them off quickly are okay. But the Bible in Proverbs 22:7 says “The rich rule over the poor, and the borrower is servant to the lender.” So the Bible itself says that debt is wrong. What debt are you saying the Bible says is okay? Unless you’re playing off the fact that God paid our debt by send his son, but I think that is something totally different.

Also, what about tithing/giving. Dave is a proponent of being charitable with the blessings you have, and the bible talks about this as well. Here is a website that lists all sorts of different places that talk about this: http://www.kluth.org/church/100generosity.htm

So unless I’m misunderstanding, I don’t get your statement that he isn’t a “good” christian influence.

Curtis October 14, 2010 at 7:12 am

I’ve found 2 issues with your stance of credit cards.

1. You don’t address the risk of having a balance on your credit card even if you plan on paying it off at the end of the month. You could mitigate that by having an appropriately sized, separate emergency fund (in cash) to handle expenses. And when you make a purchase with your card set aside the amount of your regular savings to pay off the balance at the end of the month. The only thing is you can’t use this set aside money for anything… even an emergency. Too me it all seems like a lot of hassle, just so you can have a credit card.

2. Regarding your statement that the plan should re-introduce credit safely. That is sort of like saying that at the end of alcoholics anonymous program you should re-introduce the people to responsible consumption of alcohol. For many, running up their credit card is more like a addiction.

Just my thoughts. You seem to be a reasonable person, so thought I would comment. So many just bash the man out of what seem like spite.

Best of luck to you. 🙂

Steve in W MA October 14, 2010 at 12:29 pm

Curtis, you are right about point 1, in a sense. It’s important to have the money on hand reserved to pay off the card and not be relying on future income in the month to pay it off. How I handle this is that I always budget this month based on last month’s income that is already sitting in the bank. As long as I stay within budget, even if I pay with the credit card for everything, I am fine. It’s really not any more work than simply using/basing your purchasing decisions on a monthly budget, which I highly recommend to anyone who is interested in getting the most out of their income.

Point 2 might be reasonable for certain people. Except that even here it is a worthwhile goal to equip people to overcome their former lack of control. All it needs in most cases is some discipline and techniques such as budgeting and accurately tracking your income and expenses. I think by the time someone has dug out of debt they have, necessarily, already broken the habit. What they need then is new techniques to make sure that they don’t make the same mistakes in the future. Responsible (read: strategic) credit card use can be a part of anyone’s financial life IF they have mastered budgeting and have developed impulse control around their spending behavior (well, that’s redundant but there it is!)

Steve in W MA October 14, 2010 at 12:44 pm

I want to make clear about my above comment about budgeting on last month’s income only: If I took home $1937 in September and have a total (including the $1937) of $7600 in the bank, my budget for October is based on $1937. All spending cash, credit, or electronic, and all savings comes out of that money. And all spending and income is recorded as it occurs (or very shortly thereafter) in a small pocket notebook so that it can be tabulated and the remaining balances in the budget adjusted every week to reflect how much is available to spend that month for every budget category.

Steve in W MA October 14, 2010 at 3:45 pm

I will say two things (1) Dave’s message is simple, primal, and rings true emotionally and that is a great thing. Dave keeping his message simple is a great marketing tool and makes him identifiable. Love him or hate him, he is identifiable and you know who he is and what he says on his show. These days, with the wide variety of media outlets, you can do extremely well as as media personality by just getting a small slice of the available media audience. (2) He’s really doing a lot of good by getting people to use cash instead of their cards, since for the vast majority living by a budget and using cash will yield a strong increase in their financial position and awareness and (3) the incremental gain from using a credit card and getting points is small in the grand scheme of things.

The people who listen to Dave but already know how to stay on budget and can benefit incrementally from getting credit card points already know who they are, by and large, and can certainly tweak Dave’s message to get that last .02% of dollars from their annual budget. Dave doesn’t need to talk to them (if they wish they can read between the lines, all while getting the general point of Dave’s message) and in fact it would confuse his message to do so to the detriment of the overall good.

Chris Gagner & SmartPF.com October 17, 2010 at 4:02 pm

I am a fan of Dave Ramsey’s, however, I agree with you that his system isn’t perfect. I has helped many (perhaps millions) of people get out of debt, but the biggest problem with his advice is the “one size fits all” idea that he sells.

For example, I’m in my mid-twenties and ready to begin investing for retirement. It would be awesome if I did save 15% for retirement, but that number is actually a little high if I start now. I wouldn’t need to sacrifice that much now for later. However, for someone near retirement age, 15% is much too low. They would need to put every dollar that they could afford towards retirement.

Dave’s advice is right for some people. Maybe it’s right for most people. But when it comes to finances, you have to look at a person’s individual goals and needs. Once size doesn’t fit all.

BobMB November 2, 2010 at 11:15 am

If listening to Dave only gets people to budget every month, and have 6 month Emergency Fund, then that would be a victory in and of itself. Going forward I’m having trouble deciding on whether to follow Dav’s plan of 15% in retirement and put rest on mortgage vs put every available dollar in retirement. I don’t think there is a wrong answer in either choice. With 20 years to go and with that many years on my mortgage I’m leaning towards putting 100% into retirement funds. One must gauge personal risk, age, and time until retirement.

Larry November 12, 2010 at 9:30 pm

I’m a recovering former Dave Ramsey Endorsed Local Provider (ELP). His message is simple & effective, but I grew weary over time of the shake downs by his organization. I had to pay thousands of dollars a year in order to be “endorsed”. It had nothing to do with me being interviewed, screened, checked out, etc. and everything to do with how big a check Dave’s people thought they could finangle out of me. Well, no more! FREEEEDOM!
I’m not bashing Dave, but think it a tad misleading to present ELPs as if they’ve been handpicked or something, when it’s all about the $$. Sort of taking advantage of the trust placed in Dave by his koolaid drinke…….er, I mean listeners! 🙂

JimmyDaGeek December 8, 2010 at 9:05 am

Dave Ramsey is certainly correct when he claims that peoples’ financial problems are mostly psychological. Consider how much trouble people get into by not dealing with their finances. I also agree with you, in principal, that the Baby Steps are not ordered in a financially ideal way.

For example, I think creating an emergency fund before paying off credit card debt is foolhardy. I know it feels good to have money in the bank, BUT, every dollar you have sitting around is a dollar of debt that you have to pay interest on. So what do you do if you have an emergency? Put it on your credit card. I can see you going crazy now. Why would I want someone to add to their debt if the whole idea is to reduce it? Because adding to the debt does not change the debt snowball philosophy. You continue to pay down the debt. Hopefully, you will be at a point, financially, where you can put this new debt on a clean card and pay this card off when the bill comes due. Financial maturity comes from managing debt and using it to your advantage, instead of it controlling you.

bob December 8, 2010 at 10:16 am

OK JimmyDaGeek let me get this straight, You understand and agree that peoples’ financial problems are mostly psychological but you don’t understand why you would save a $1,000 as a starter emergency fund and instead use a new seperate credit card for any small emergency expenses? I think you missed the point you already agreed to. The reason you save the $ 1,000 and pay for any small emergency expenses with it instead of using another credit card is becuase your trying to change you habits and mind set. DR whole plan is to get you completly away from CC and you can only do that if you change your habit and state of mind about CC. It would very hard to do this if you keep using them while your trying to stop. Let me put it this way, it would be like trying to stop smoking but during that process you still only smoke when you get stressed. Chances are you will always find a way to get stressed and therefore never quit.

Like you said, “mostly psychological”.

Steve in W MA December 8, 2010 at 1:21 pm

Credit card debtors tend to spend not only their their available cash, but evern their credit line. he behavior of “spending” all of your money out of your account, whether to pay off debt, or to buy things, is the main behavior that needs to be changed when getting out of consumer-purchase-driven credit card spending patterns and debt.

Learning the behavior of letting cash accumulate in the bank without spending it is vital for someone who needs to get out of credit card debt. So saving a $1000 baby efund is vital. If you can’t do that then you aren’t developing new skills of being able to let money sit without spending it.

Compulsively spending out all of your available money to fight your debt, even when it’s not possible to pay it all off for months and months, is the kind of compulsive, or at least undisciplined, spending behavior that gets credit card debtors in trouble in the first place, and is the first behavior they need to change. So, yes, save up $1000 in cash and don’t touch it unless there’s an emergency If you can handle doing that then you will be able to handle paying off the debt. If you can’t handle it and rely on the credit card for “emergencies” then you will very likely be using the same kind of rationalizations and unrealistic expectations (expecting to pay for things “in the future”) that got you into trouble in the first place.

Change your behavior, save up your efund.

modette January 4, 2011 at 4:50 pm

I am not to into his anti credit cards, or store credit but then again the wife and I are not that far in debt, we have 4 simple items…well make that 3 as we are paying my car off. House, Wifes Car, Visa…

We do plan this time around to keep Visa paid off totally each month…we pay them off yearly with tax money…so it never gets up to what callers call in and say…and I can not believe people have more then one credit card…that I will never understand and those people probably need to aggressively do his plan. If a credit card issuer tells you, you only qualify for a 16%, 24% card you need to look elsewhere or look in the mirror because you must be high risk.

Only time I have used store credit cards is when it is 0% for 12 months or even a lot longer. I bought a whole TV entertainment system and was going to pay cash but hell the store did 0% for 36 months…paid it off in 24 months and closed the account. I even spent 2 hours haggling and saved $1,000…so yes Dave you can haggle and still finance the items. I did the same with the sleep number bed, 12 months 0% paid it off in 10 months…I’ve done it with lots of items and it was never a loss, but a win. But then I understood what we could afford. I get interest, and I got to use someone else’s money FREE.

Dave would hate my methods…LOL The best was during the Dot com days I bought a new motorcycle at 0% for 24 months on a credit card. $9,000. I then floated that amount to other cards at 0% for about 4 or 5 years till it was paid off. Of course that was during good times…but why plop down $9K cash when I can use someone else’s money free. Probably not possible or safe to do now…they tossed those 0% around like candy back then.

But like I said I then did not go out and get another card, and another…I managed what I knew I could afford. Dave always talks about 23% APR rates, I have never in my whole life seen a rate that high on any account I have held and used. Even buying new cars, I have seen 1.9% on a 1997 Ford Escort when I was in College, I think the highest was 6.9% on a 2001 car I bought, even my Used car I drive now that will be paid off is only 2.9%…my wifes after A/Z plan, rebates and 0% for 60 months is not a bad deal…oh and I haggled even getting the A/Z plan which is below invoice on the remote start. If you know how to haggle you still get deals.

I don’t see the big deal buying new vehicles if you plan to keep them for a long time. I grew up in Austria…so I am used to the idea of a nice vehicle and then keeping it for 10-20 years. *shrug* Plan with the wifes vehicle is 10 years. In 60 months it be paid for, in the next 60 months that same money will go to a car account and cash will be paid for another vehicle.

I agree with leases, I hated it…I had one a Ford Explorer…it never felt like MY vehicle. I bought tow hooks for it, and a skid plate, I made sure to take it off before turning the vehicle back in. My wife grew up in a house where her parents leased…I just got her out and she agrees leasing stinks. However we did have equity…but that was because we leased the vehicle on A/Z Plan (Ford) and had rebates, and for whatever reason Ford vehicles have held their ground…so I made the dealer give me $1,000 as our buyout was lower by lots of money then Book value. They did it without blinking an eye. again it comes down to knowing your stuff and being smart and proactive before taking action learn everything you can.

Dave is right when dealing with contractors cash is king. I will typically get a discount if I pay cash vs credit. I will haggle a price, then when we go to sign the contract I will say “how about a cash deal”…most will do a cash deal as it saves them the credit transaction fee, and when they claim the job on their taxes they can claim a lower amount. It worked on the title guy, the carpet guy, the blind guy, and last year the landscaper. We consider that stuff differently and we pay cash for it…plus they don’t typically have store credit…..only place that does is like Lowes or Home Depot but why pay them more!!!

Credit Cards also are good for theft…I mean do you want $6K drained out of your checking because someone got a hold of your debit card? I think not. At the end of the day I rather it be a credit card…worst case if the credit issuer wanted to F me over…I just walk away (I never had it happen yet, and fraudulent charges are handled very quick with no hassle in my experiences).

I will have to say Dave Ramsey is addressing people with very poor money saving abilities. His teachings are directed mostly to those people that lack common sense although some just fell on hard times. I mean I have his audio book, and the whole section on trailers is like REALLY!!!!

Then again nothing wrong with a trailer either. Upside if your a professional is that you can have it paid off in 2 years…and who cares if you loose half your money…in some cases the numbers make sense. You can also rent which you also totally loose your money. Say you rent at $1,000 a month for 12 months that is $12,000 over 5 years that is $60,000. The trailers I once looked at when I was 22 were 60K to 80K NEW…so lets say I buy a used one for $30K which there were tons of. $30K would be paid for in a year…but lets say it took two…that is $15K a year. The other 3 years you would be living there and just paying lot rent for the space. But the good part is say you then sold it for $15K at the end of 5 years your only out $15K and whatever your area charges for lot rent….at least you got something back unlike the $60K in an apartment you are 100% out off…and lets say lot rent was $200 a month or $2,400 a year…and in 5 years that is $12,000 you loose…no where close to what you lost on the apartment. Like I said you got to run the numbers for yourself, your area, and compare things. In the long haul I would not want to be in an apartment or a trailer is the bottom line and those places should be used as a stepping stone not a fixed feature.

Also know your limits. For example when the wife and I moved out to CO. We told the Realtor we wanted to look at $150K-$200K homes. We wanted to see what the area had to offer. I then bumped it to $250K…we still did not like what we saw…so I upped it to $300K to $350K…in this range we started to find homes that we liked. I knew what we could afford because I sat here and played with the numbers. I will admit our Realtor was ticked off and said something like “why were we looking at those other homes if you can afford more”…because if we found something for $200K great, you know all they want to do is sell you your top end of what a bank says. We then went to the bank, they said hey you qualify for $500K…we said thats nice but all we need is a letter stating $300K…the bank lady seemed confused and said “but you qualify for more”…yeah if we had no debts sure…but we have debts, and a life.

So at the end of this long reply to this site all I am saying is whether it be credit cards, a mortgages, or cash…know YOUR limits and don’t whine when you over spend. You got to be proactive in your life. Why keep up with the Joneses!!!

I wish all the best, but credit cards are not the problem…you are.

justin January 10, 2011 at 1:12 pm

I think you are ok (author) but you are still wrong.

Dollars Not Debt January 21, 2011 at 10:29 pm

I have been following Dave Ramsey’s plan for about 2 years and I will be 100% debt free in August of 2012. House and everything! The plan works–but only if you are focused and have self-control. I will have paid off a total of $100K in the four years. I talk about my path to debt freedom in my blog.

Dollars Not Debt

Dan January 22, 2011 at 9:15 am

“Credit Cards also are good for theft…I mean do you want $6K drained out of your checking because someone got a hold of your debit card? I think not. At the end of the day I rather it be a credit card…worst case if the credit issuer wanted to F me over…I just walk away (I never had it happen yet, and fraudulent charges are handled very quick with no hassle in my experiences).”

Nice post…Don’t really agree with a lot of it but that has to do with mainly the differences in philosophy I think we have when it comes to these things so arguing would be pointless. I did want to comment though on this. I’ve had my debt card stolen before and a)if whoever steals it runs it as a credit card, you get ALL the protections that credit card company offers. For example, my VISA debt card was stolen and used and VISA gave back all the money that was used. Also b)if you debt card is stolen and it is used as a debt card, the bank HAS to give back the money that was used because YOU didn’t use the card. The bank will just go after the company that accepted the card and they will be held responsible, since they didn’t check the ID.

Just some thoughts.

Ray Cofer February 8, 2011 at 11:46 am

I find it interesting that people take exception to Dave Ramsey over the credit card order in which you pay and the order of steps. The concept he teaches is basically self discipline. The Steps have to be in some order for it to work. I suspect dave would not be upset if step 5 was switched with step 6 or in reverse. However, the idea of living without credit cards is the best way to live in my mind. I retired this year at 61 with no debt. I have no house payment, credit card payment, or car payments. I still have expenses (taxes, insurance, utilities, etc, but no bank debt of any kind. It simply allows me to sleep better knowing I don’t owe anybody.

Arguing about what order to pay your credit cards is not really an arguement if you pay your debt off rapidly. If one is 5,000 and one is 20,000, it makes sense to get rid of the lower one so you can throw that payment onto the larger debt. Dave is right about the issue being behavioral and not a math problem. I’ve got too many friends that don’t get it. They have huge car payments (even leases), along with houses they really cannot afford and are still charged up to the neck. Both husband and wife HAVE to work or they go under. Then when one loses their job—the stress puts them in a very negative situation. some have ended in divorce.

I don’t think anybody should follow Dave Ramsey as a guru but as a process to live better and reduce the stress and complexity in your life. It does work. it is not genius but difficult to do. You have to want to change your habits and develop the discipline to do so. In a society that gets impatient with waiting for the microwave for 120 seconds, this is tougher to do than people think.

Wester February 10, 2011 at 1:29 pm

The Fed has increased the supply of dollars 300% in the last 2 years.
Your $ purchasing power has been cut out from underneath you. Dave Ramsey obviously is too engrossed in his bible verses and his own fame to actually give useful advice.

Here is the clue Dude….
if you are paying off your house early – you lose.
if you save money – you lose
if you live debt free – you lose
if you make more than the minimum payment on your debts – you lose

The price of everything is going to double or triple in the next few years and your debt and mortgage will become confetti.

Dave Ramsey works for the Federal Reserve and $ INC.
He doesn’t work for your purchasing power.

Dan February 10, 2011 at 2:32 pm

So basically if someone has no debt right now, they should go out and buy everything they can so they have debt?

I know inflation means the value of your debt will be going down, but to encourage people to spend more than they can afford is just dumb.

Eric March 18, 2011 at 4:31 pm

Let me tell you about American Express.

I received a $50 AE giftcard and I didn’t use it for a couple of years. When I decided to use it, I call the activation number and they said it was now activated. I took it to the store and they told me the card was expired. I called AE and got stuck on the automation carousel. The computer card told me the card was now worth only $36 if I got a new one.

Such a small amount why would they bother. They were making money on the purschase for a couple of years and also interest. That company that takes care of you will rob you the first chance they get. I’ll never use their products again. They can stick their annual fee in their annual fee spot.

ME March 25, 2011 at 6:20 pm

You are an idiot.

Bill April 14, 2011 at 4:08 pm

Call me Scrooge, but my kids paid for their own college. When I went to school and my parents paid for it I wasted my time and their money. Once I became serious and started paying for it out of my own pocket my grades improved and my goals became more focused. I was not about to waste my kids time the same way – and knowing their personalities and the mindset of today’s youth, that’s what it would have been. Instead, they have funds available for a down payment on a home when they need it.

Also, I agree with you, Kevin, about credit cards. I do quite a bit of traveling for work (and pleasure) and as far as I know, you can’t buy an airline ticket or rent a car online (usually the best discounts) without a credit card.

As far as retirement, I am blessed to be in great health and because of the type of work I do, I will be able to work into my 60’s and most likely 70’s without any trouble. So I’m not too concerned about building a retirement.

Dave May 1, 2011 at 3:55 pm

I travel frequently and use a debit card routinely for airlines, hotels, and rental cars. I haven’t had any issues.

DR’s philosophy on managing money is based on biblical principals that may be challenging to adopt if you don’t have similar beliefs. I’ve lived both ways and I can honestly and sincerely say that living completely debt free is far more comfortable, rewarding, and pleasant than being in debt.

As for using CCs to make money off of the rebates…when you reach baby step 6 or 7…that small amount becomes completely insignificant compared to your overall net worth. It’s just simply not worth the hassle (kind of like a millionaire clipping 30c coupons). Though I’m sure the “savvy” CC user will adamantly argue they do not spend more using a CC, statistically consumers do buy more.


My family is not an exception. After switching to debit card and cash transactions only, we have reduced our monthly spend by about 10%. And we weren’t even trying or cognizant until we looked back at 5 years of quicken data.

If you believe that one must use credit cards or debt to prosper, you are simply wrong. Think about this…there is a bank on every street corner in America. Banks aren’t much different from casinos from the consumers perspective. Neither would exist if the odds where against them. Continue using debt and the odds WILL catch up with you.

Kevin May 1, 2011 at 7:08 pm

Debit: made of plastic, requires swiping.
Credit: made of plastic, requires swiping.

Unless you’re foolish, it’s the same idea. You swipe the same amount.

One more question: where do those millionaires store their money?

The bank.


John August 19, 2011 at 8:54 pm

Dave –

Well, I have had, and continue to have, sporadic trouble when using debit cards for travel related items. Car rentals are the worst. It may be a function of living in a smaller town, but there it is. More than once I’ve been told “you can PAY with a debit card, but you’re not leaving the lot without a CREDIT CARD” … .

And it just isn’t travel – try to purchase iTunes gift cards to email another person. My financial institution says it is a common complaint – people have funds in their account, iTunes makes the inquiry, but won’t proceed with the transaction.

Not saying it’s right (or legal, for that matter) … but it does happen.

Joshua June 3, 2011 at 9:40 pm

I grow up in a family that had no idea what finances were. I learned from Dave’s Book. I am now debt free and working on my 5th business adventure. I said 5th because all the other ones failed because of a lack of financial security to take any risks. I do agree with the comment in this about the credit card thing, but cash is king. I can get a better deal on stuff with green. Plastic is not liked by small business. Think about it, you go in to by a car with plastic the dealer will have to pay what for that transaction so you get a 3 or 6 % kick back. I think you could do better with cash. That’s what Dave is teaching. The banks are getting rich by driving people in to debt. How easy would it be to let that card payment slide when the bank account is moving towards the red? Credit cards are temptations when you are desperate.

Kevin most millionaires do not store money. That would be foolish.

Ps I can’t belive I just op-ed in on this.

Fred Smith August 17, 2011 at 7:46 am

I have a different perspective from the other people commenting here. I had never heard D*ve Rams*y speak until two days ago. He said on a video: “You’d be wealthy if you stopped doing stupid stuff with your money.” I was so shocked I replayed the video, just to write it down.

I volunteer in my church to help poor people, some who are excellent with money and some who are terrible. I think his 7 baby steps are flawed from an accounting standpoint, but they are basically okay.

But his unspoken attitude that “If you are poor it’s your fault” is completely contrary to Jesus’ teachings.

Take my friend Sally (not her real name):

One day shortly after her 4th child was born, her husband left her to have an affair with the woman across the street. Sally had four children under age 8. Her husband was a contractor who was always paid under the table, and evaded the State’s attempt to garnish his wages. Sally earned minimum wage. She had $10/week to feed a family of five. One of her children had severe learning disabilities, so she had to stay at home and help him with his school work. Her husband, over the next 18 years, contributed a grand total of $200. She had no clothes suitable for job interviews. Her car barely ran. When the car died, she had so many dependents and so little income she could qualify only for ultra-high interest car loan.

Despite this, Sally was kind to other struggling families and at one point had another family of five stay in her living room for three months. The father had gotten severely injured on a painting job with no workers comp, and the wife was happy to have any job, even if it paid minimum wage. Their autistic youngest child was difficult to manage and keep quiet and therefore the family got kicked out of their apartment. He also required frequent visits to doctors and specialists.

Tough times, accidents, poor health, major reversals, and a willingness to help other is need, are just facts of life. Jesus was compassionate to the poor.

He would never have said:
“You’d be wealthy if you stopped doing stupid stuff with your money.”

Kevin August 30, 2011 at 8:57 pm

I think there is a disconnect here. Being poor and being stupid with money can be mutually exclusive. If you grew up poor, got a poor education, and have worked minimum wage… you’re poor. But you can wisely spend your minimum wage funds.

Likewise you can stupidly spend your money to put yourself into such a situation where you can be wiped out. I’m not at all saying that was your friend’s situation… that’s just tough.

But one might argue that being married to someone with no W2 income might be a bad decision. Or not having a financial plan in place might be a bad decision. Or staying out of the workforce to the point that you only have minimum wage skills is a bad decision. .. which might be a reflection of the decision to have 4 kids.

It’s a whole line of decisions that get you to a point. Of course those decisions were likely made in trust of her husband, so being betrayed can obviously mess up the plan. Bad things happen, yes, I totally agree. Even if she had thousands saved up in the bank all it takes is her husband leaving and emptying the accounts.

Also, I would say people in that type of situation are in the minority of the group of people in debt/not wealthy. A majority of Americans live paycheck to paycheck… they spend their money on TVs, cable, alcohol, eating out, car payments, financing their furniture… you name it. A majority of people haven’t had some major calamity in their lives aside from their own decision making.

Just my two cents.

Fred Smith September 9, 2011 at 9:20 pm

No, Kevin, I disagree.
I think that attitude is pretty cold hearted and shows a focus on money that is unhealthy and out of balance.

• So is it always foolish to marry someone with no W-2 income? No, a lot of very successful people have no W-2 income.
• Is it wrong to marry someone with no clear financial plan? No, of course not, not all people are into planning–no crime there.
• What if you didn’t have skills that would give you a $70K/yr income the day you turned 21? Are you a loser? Nope.
• Is it lazy to be a stay-at-home mother and have 4 children? No, it shows faith and hope in the future. It is the ultimate in entrepreneurship.

You cannot always micro-engineer your life. Cancer, mental illness, car accidents, death, abandonment, sudden reversals, company closure, etc., happen everyday.

Let’s hope none of these things happen to you. People who are hard-hearted when rich are often abandoned by their so-called friends when they aren’t.

Kevin September 9, 2011 at 9:59 pm

See this is what I love about blogging. People come in, don’t actually read what you wrote, and try to put words in your mouth. It’s a beautiful thing.

Is it *always* foolish to marry someone with no W-2 income? No. I didn’t say it always was. But willingly being involved with someone who is knowingly breaking the law — getting paid under the table to avoid income tax IS illegal, remember? — is a bad decision. There’s a thing called paying taxes. If your husband is unethical enough to not pay taxes on his earned wages, that tells a lot about his character. I would call that a poor decision that came back to bite her. Shocker.

Is it wrong to marry someone with no clear financial plan? Interesting, because I never said it was wrong. I said it was a poor decision (there’s a difference) — because it is! Ignorance is not bliss, as she is learning. I know 70% of all Americans are living paycheck to paycheck — having no financial plan — but that’s not an excuse to put up with it.

With your third point you are implying that this lady doesn’t earn $70k per year at age 21… so I can only assume she had 4 kids by age 21? Yea, I would call that a potentially poor decision… one that was compounded by the other choices described above. It’s a high risk choice. And who said you need $70k to survive?

Is it lazy to be a stay-at-home mother? Hmmm… again, please read, because I never said it was lazy. You’re just making assumptions on how I feel about this situation because I’m being blunt about someone you care about. You are ignoring what I’m actually saying. I have nothing but respect for stay at home mothers — and working mothers, too. Having 4 kids running around must be insane. I respect that. But intentionally staying at home, out of the work force, with an unethical, paid under the table husband… is risky. And it didn’t work out. Shocker.

What you see as micro-engineering your life, financially savvy folks see as risk aversion and preparation. You can’t prevent things you listed, but you can financially prepare for them.

How? In order:
-cancer: emergency fund, health insurance, disability insurance
-mental illness: power of attorney, emergency fund, health insurance, disability insurance
-car accidents: car insurance, health insurance, emergency fund
-death: life insurance, power of attorney, emergency fund
-abandonment: up to date skills, solid understanding of the family’s finances and locations of money (yes, this is the most difficult one to prepare for)
-sudden reversals… (of fortune?): emergency fund
-company closure: emergency fund, not living paycheck to paycheck

Yes, I hope none of those things happen to me. But, if they do, I have financial protections in place to help soften the blow.

Thanks for calling “people” (me) hard-hearted and rich. I might call “people” (you) ignorant and unprepared.

Chris September 4, 2011 at 10:28 am

Strange, but my financial institution provides the same protection and coverage as your credit card company by just using my debit card. 🙂 Just a note.

Kevin September 4, 2011 at 11:19 pm

Yes, and how much cash do you have in your debit card account? If someone commits fraud on the account, sure, you won’t be held responsible… but those thousands of dollars may end up being in limbo for days… weeks? I had a friend who had $3,000 stolen out of his account once and it took 2 months to get it back. Thankfully he had the funds to survive without it, but how many people are in that position?

With a credit card it isn’t even your money that’s been stolen. It’s your credit limit — the credit card company’s money. On top of that you have a 30 day window before your bill is due. You file a dispute and don’t have to worry about anything.

So yes, some of the protections can be the same, just with more inconvenience.

Speaking of having the same benefits… how many debit cards provide cash back and travel rewards like credit cards?

Dan September 4, 2011 at 11:45 pm

Just thought I would quick mention on here Kevin that may DEBIT card gives me a nice cash back reward. Honestly, if that is what you are using a CC for, than it’s time to check out Perkstreet. They offer a cash back reward, or music reward, or coffee reward. They also can send that reward to you in a gift card to one store, or one of those multi places gift cards. Just thought I’d mention that.

Kevin September 5, 2011 at 12:07 am

Dan, I’m aware of that program. But how many debit cards offer that? Every one? No. Most do not. On the other hand most credit cards offer some sort of reward function. Most credit cards also automatically extend your warranty, and provide travel insurance, and cover your rental car if you are in an accident… things that many debit cards don’t offer.

And again, what happens when someone wipes out your bank account the day your mortgage is due?

Britt November 5, 2011 at 7:51 am

I think Ramsey has the right approach for his target audience. For example, some recovering alcoholics can have a beer or two without getting into trouble. They know who they are, but why tempt a crowd of alcoholics by offering them beer?

I think you’re absolutely right. Credit cards have their place in a financially fit person’s financial plan. We use them regularly for cash back, but we can handle it like you can, and we know it. I think anyone following Dave Ramsey’s Baby Steps that is capable of handling it will draw the same conclusion. Great discussion!

TJJW February 16, 2012 at 9:21 pm

DR is excellent at teaching people how to handle their monthly cash flow; budgeting, saving, emergency funds, etc. However….. I am a personal finance professional working on Wall Street and trust me, his 12% is simply not true. Any claims that it is are untrue. If they were true, my job would be a million times easier, but you cannot invest and get the equivelant of a 12% return, anywhere, anyhow UNLESS you’re willing to risk it at seriously high stakes. DRs calculations and projections are based on getting 12% every year – because he claims thats an average, what if someone retires in a down year? Because they’re in a risky investment, it’s down and they don’t have time for it to maybe bounce back in a few years. Increasing risk simply means increasing the chance of failure.

Irresponsibile teaching, the long-term effects will devastate many unless they start taking it with a pinch of salt.

ramsey fan #1 February 17, 2012 at 9:26 pm

your article blows the big one, dave ramsey rocks. stop writing garbage articles and stop getting mad you are in debt.

Julie March 3, 2012 at 12:14 pm

For years I use to follow Suze Orman and I believe her philosophy was similar in paying down the highest interest rate credit card first, regardless of the balance and then tackling the next highest. When I heard about Dave Ramsey and his philosophy about the debt snowball, paying off the smallest to the largest debt I thought he was wrong and wasn’t financially smart. However, I have to say that I ultimately jumped on board with Dave Ramsey’s plan and there is something insane about getting one debt paid off and it gives you a drive to get the next one paid and so on. I know it goes against the logical brain and it seems like it doesn’t make sense but I honestly think that with his plan people get out of debt quicker than people who pay the higher interest rate. It worked for me and lots of my friends. In 17 months, I’ve paid off 77k in debt and only have my 29k left in student loans. Gazelle intensity really does work

Honolulu Aunty March 10, 2012 at 6:37 pm

Suze Orman and Dave Ramsey are great for helping people get out of debt, but their advocacy about staying out of debt forever is wrong for me because this theory limits the ability to invest and grow using leverage.

After people get out of debt (very important), there needs to be a financial goal of wealth building, not just accumulation. This means breaking out of the box of normal safe behavior and expanding knowledge and resources in order to invest wisely, and not necessarily traditionally within mutual funds, bonds, stocks, etc.

I like their debt reduction steps, but consider them all to be part of Step 1. Step 2 and beyond are for being able to live comfortably with passive income for the rest of our lives.

Mahalo for your education and allowing us to share!

officesplyguy June 20, 2012 at 4:02 pm

Wow are you serious…I am sure you would go and tell your friend who was a recovering alcoholic and tell him I know you have been sober for 3 years but aren’t you recovered now, here take this drink. Fact of the matter there is no fix, for most people there is a constant struggle to continue this life style. Similar with overweight people who have lost the weight. It doesn’t necessarily get easier just a realization that the benefits of staying thin outweighs the benefits of eating that cheesecake. But at the same time I wouldn’t plan on leaving that cheesecake in the refrigerator just in case, its setting myself up for failure. But it looks like you are sponsored by some credit card site so I guess your the real fraud here. Dave is simply trying to say if you try to skim every corner eventually you may get caught and the risk of using a credit card don’t make up for the benefits they net you. And don’t try and tell me their aren’t risk…the only people who say that are the ones who have been able to slide by without having the “pleasure” of unforeseen circumstance.

Kevin June 20, 2012 at 6:13 pm

Ah, yes, anonymous commenter, that is exactly what I said. I actually stand outside of AA meetings with a cooler full of beer waiting on the poor saps to come out.

Give me a break.

If you can’t handle credit, don’t use it.

That’s fine.

Just don’t tell me the road to financial nirvana is paved with debit cards and cash, and the road to financial hell is paved with credit cards.

I use credit cards all the time, don’t pay an annual fee, and have never paid a dime of interest or finance charges.

The risk of a credit card can absolutely be overcome by the benefits: if you pay it off every month its an interest free loan (so you can earn interest on your savings), you earn rewards like cash back for your normal spending, etc. Not to mention the benefits like warranty extension on electronics, trip assistance, and so on.

If you want to be ignorant and point your finger, that’s fine. Won’t bother me a bit. I’ll be cashing out some cash back off of my AMEX in a month or two. Should be nice…

JoeTaxpayer June 21, 2012 at 8:51 am

Kevin – when something is inherently evil, there’s no changing its nature. There are religions that believe that alcohol is evil, and they can cite the number of alcoholics in this country along with drunk driving numbers. Questioning their belief is pointless. Questioning the divinity of anyone’s deity is pointless.

Can I throw some logic at you for a minute? Venn diagrams, first group = the group that uses cards, but never pays a dime in interest. second group = those who float debt month to month. third = no card use, The David disciples.

The David disciples don’t believe the first group exists. Yes, they may pay no interest, but there’s a cost. “they charge more, and spend more than they would otherwise.” We actually have studies proving this. The studies are small, contrived, and academic (in both senses.) I hand my 13 year old her allowance ($13) and it goes into the bank (smart kid.) I give her a $13 gift card to Starbucks and she’s treating a friend to lattes (generous kid.) Plastic/vouchers/giftcards are treated differently than cash. For small situations, and perhaps the ‘group 2’ above. The phenomenon does not extrapolate to my $5000/mo budget. I don’t buy more gas, more food, and the kid’s clothing budget depends on her outgrowing her current wardrobe not the source of funds.

Your Amex cash back must be nice. Our 2% cash-into-529-account card has funded over $12,000, and on track to fully pay for a college semester. “No one got rich on cash back credit cards.” Of course not. I didn’t get rich on cutting coupons. I didn’t get rich by understanding the store sale cycle and always paying $2/lb for chicken breast (for example). But every last thing adds up. You might say “wow, Joe, you think you’ll hit the $25K/semester that college will cost? that would be pretty cool.” Yes, thanks. It would. But The David disciples are certain, as sure as you are that the sun will rise tomorrow, that the $25,000 will have cost me dearly in “increased spending.” Neither you nor any group 1’er would walk away from $25,000 tax free.

Last – I am still eager to see any study that follows spending for a sufficiently long time to produce meaningful data on the plastic-bloat of spending. Contrived experiments with students don’t result in anything worth reading, nor do very short term observations.

NotADaveDefender April 24, 2013 at 4:19 pm


A Venn Diagram does not always equal a logical argument.

For example, we do not now how big each group is in your Venn Diagram. I will make a couple of assumptions. First, group two (Floaters of debt) comprise the largest circle. Also, and more generally, parents of each group spawn children who fall in the same group.

What Dave Ramsey says is that “most” people, the group twoers, spend more when using plastic. Again, those people are clearly not in your group 1. Nor are they in the group 3 Dave disciple group who spend only cash. But if my assumption is true, then Dave’s statement is probably true as well.

I assume your 13 year old gets her good habits from you. A real test for her would be for you to give her a prepaid debit card with $30 on it and tell her it has no limit. Then see how long she can go before hitting the limit. If she just spends $13 at Starbucks, you have taught her well. If on her trip to Starbucks she spends $15, then she just spent more than if you gave her a $13 gift card or $13 cash.

Dave definitely teaches using generalities and that makes it hard to prove or disprove.

JoeTaxpayer April 24, 2013 at 6:59 pm

Dave wins. Why? Because even when I admit that there are a majority that fit his rules, he will insist that the minority can’t be known in advance.
In other words, even if I agree that it’s the exception, only 10% that are not impacted by the ‘pay more with plastic’ generalization, it would seems that his observations cast doubt on every last person.
Offhand, I don’t know how many pay in full. I do know that a large portion of our budget is fixed and planned. I’ve done well using cards and paying in full each month. I accept it’s not for everyone.

NotADaveDefender April 26, 2013 at 11:51 am

Dave wins. 🙂 That’s his plan. I totally agree with you that all arguments could be solved by Dave sharing his actual data with us. Then we could at least debate the data, not what appears to be his opinions. However, if that were his plan, he might not always win.

Ray Cofer July 27, 2012 at 6:02 pm

I think Dave Ramsey has turned thousands of people around in their financial status and will continue to do so. His steps to avoid and dissolve debt are not original. His approach is total common sense but difficult for our culture to accept. I have been out of debt for 4-5 years now and it is a less stessful existence. If fact, my wife and I can do whatever we want, whenever we want to because we have allocated funds for such use.

Ramsey’s plan does work! Unfortunately, there are so many that don’t get it and have no self restraint in terms of spending. We have a microwave society and most people cannot wait until they can afford any new product introduced on the market. These people will always be broke and among the millions that want somebody else to take care of them.

Tom July 27, 2012 at 8:35 pm

Dave gives advice to the general public when ,
Most of the time it isn’t relevant to the person listening to it. Kind of like telling a 30 yea old to take out a 30 year term life insurance
Policy because they won’t need insurance at age 60. Dave is no better than any of the other gurus out there

John July 27, 2012 at 9:46 pm

Tom, I think you’ve missed Dave’s point. If you’ve followed Dave’s advice and worked hard, stayed out of debt, and put away money for retirement, you won’t need life insurance in your retirement. If you’re having to working into your 60’s, you may need to keep your life insurance. However, many people retire around the age of 60, and that’s why Dave says you won’t need life insurance. You’ll be self-insured, meaning you’ll have enough in your retirement to pay for your funeral and have enough left over for those who are depending on your money. But as you have already pointed out, Dave talks in generalities and his advice won’t work for EVERY person’s situation EVERY time. His advice is sound, as general as it may be.

gustav@ HBS Financial Resources April 30, 2013 at 5:36 pm

I think the first thing that we have to agree on is that there is no one plan that will work for everyone. I’ve read so many plans from as many financial gurus, and I’m fairly certain that each has probably helped someone along the way. However, I too disagree with Dave’s debt snowball psychology. Pay down the highest interest rate cards first just makes more sense. Seeing the balance drop each month should be incentive enough.

Mike May 23, 2013 at 1:51 pm

Just furthering the disucssion, and it is a good discussion.

“While that may be true, it is mathematically flawed and ends up costing you money. A simple example: you have two credit cards with balances of $1,000 and 3,000. Card A ($1,000) has an interest rate of 9.99% and Card B ($3,000) has an interest 23%. Dave wants me to keep paying 23% interest while I knock out the first card. That makes absolutely no sense and is costing me money along the way.”

The problem here isn’t the interest rate it is the fact that you have a $1000 and a $3000 debt. As Dave will say, mathematically you are right, but the reality is life happens. If you are in debt looking at $4000 (in your example) might be overwhelming for someone, but breaking it into smaller bits ($3000 and $1000) is psychologically different (hence personal finances is less about the math and more about the emotion). Seeing the $1000 dissappear gives you more energy to continue and tackle the $3000, plus you now have the added money that went to the $1000 to throw at the $3000. As for the interest unless you plan on carrying the debt for years (and really you should be kicking out that $1000 in a few months not years) you are talking about a few dollars. And if the math makes you mad, following Dave’s plan will keep you fired up and more likley to get the $1000 cleared faster because you want to get rid of that 23%.
Remember, if it was about the math why would you have a $3000 credit card at 23%? Obviously, the math way isn’t working because mathematically paying cash for something rather than buying it on a credit card at any % makes more sense. So if it was about math this arguement is null an void because you wouldn’t go into debt in the first place.
“My second beef with Ramsey is that he wants you to do steps 5 and 6 before step 7. This isn’t a major concern of mine, but I don’t think children’s education should come before retirement. For some people, saving 15% will set them up for life when they retire. For others, not so much. You can’t borrow for your retirement. You can borrow for your kid’s education. Remember that.”
Step 4 is retirement, so it is before. 15% collected over your entire working lifetime should leave you with a nest-egg over a million dollars. Most folks should be able to retire with that very comfortably, if they have no debt at all. 2nd, in most cases kids will be going to college before you retire, so it does need to be addressed before you go beyond the 15%. Yes kids can borrow for education, but with that mentality you can also borrow for your retirement (hence the explosions in Reverse mortgages which is a whole new bad take on debt). You can borrow for anything, its a matter of whether or not it makes sense. Also, you need to remember that with Dave’s plan you will not be borrowing money ever again. If borrowing money is something you plan on doing, then there is no reason to discuss Dave’s plan at all – it is not for you.
“The third concern I have with Ramsey is his anti-credit card stance. This is my largest issue with the Dave Ramsey system.

I understand that there are people out there in the world that simply cannot manage a credit card safely. For those folks, I have no problem saying you should use cash and debit cards for the rest of your life.

However, I don’t understand why Dave’s system starts with getting out of debt and stopping the use of credit, and ends with building wealth… but continues the theme of not using credit. If his system was there to truly rehabilitate people, he would train them how to safely use credit.

This may seem minor to some people. So you’re missing out on $400 of free money per year. Big whoop, I can deal with that. But there are many extra benefits to using credit cards and if the person following his system is truly following it to a T, then it applies just as well to credit cards as it does to cash and debit cards.”
Here is the false premise that you can safely use credit. You can plan on paying off the balance at the end of every month, but then life happens and you carry over the balance first one month they pay it all off, then it happens again and again and you carry the balance over a couple of months, before you know it you have all this debt and you are one of the “hard cases” calling Dave for advice. Sure you get $400 back at the end of the year, but you paid $1000 in intereste. You didn’t actually get $400 and would have been better off just paying cash for the whole year.

Now lets also consider that the average Credit Card user spends more than they would with cash. Here is a good link that actually sites the research to back this up:
So even “safe” use of a Credit Card will more than likely end up with you spending more than you would if you paid cash.

How about you close the card out, but the company keeps a penny in the account and doesn’t tell you and that balance carries over and a year later you getting calls from creditors about an overdue account and all that hassle (happens everyday no matter how “safe” you are with credit cards). Sure you can clear your account and get everything straightened away, but after how many hours of headaches and how much time of yours spent (time = money) and in worse cases lawyers fees if it goes to that?

And since there are Debit cards that give you cash back, why not use those instead of credit cards then you cannot get into debt trouble and you can still get cash back if you want to claim that benefit?

My point – there is never a time when you need good credit, unless you are bad at managing money. Because if you are good at managing money you will never need to borrow to buy, you will have the cash to buy.

Good discussion, thanks for hosting it.

JoeTaxpayer May 23, 2013 at 2:22 pm

No link was posted with your response. I’m curious, because I have never seen a study that adequately shows that credit card users spend more. Yes, a college student recruited for a study will spend more from a $10 gift card to McDonalds than he will spend from a $10 bill, but that kind of study is meaningless.

James April 29, 2016 at 8:05 am

Seriously? I would chance to say that someone who uses cash doesn’t spend more than a person who uses a credit card. Credit doesn’t equal cash. Cash equals cash.

Erika August 20, 2013 at 1:13 pm

I hear what you are saying, but if you have not read Dave Ramsey’s reasoning for the way he lists his steps, you should. I also think his language can be a bit abrassive, but his intent is to stir people into thinking. He alls his mistakes the same names that he calls those of others. His ideas are for the people whose other ideas have not worked. He is not speaking to everyone. There are parts that seem strict, but the end result for many is a shift in the way people think about their money. It builds a stronger foundation and awareness of money that many people who overspend these days do not have. Also, I believe that step 7 is meant for extra retirement funding and not intended to be more important than the earlier step referring to 401k and mutual funds.

Judy November 28, 2013 at 6:32 pm

I think that yours, or any person who has their debt under control & knows how to manage their money is a totally different perspective than that of the people Dave Ramsey is reaching out to.
The ballgame you are playing is not the same ball game at all.
I give Dame Ramsey a huge “thumbs up” for the thousands of people he has helped get their debt out under control and keep it that way. I think that once people do that, they are more likely to be able to handle their credit much more successfully than when they started.

V August 20, 2014 at 12:16 pm

There is hard truth in its not the same ballgame as he’s playing like him I do collect my cash back and pay off my bills monthly and have a great retirement and savings to say I could survive exactly the same as I am now without changing a thing for 3+ years without income. His teaching are for those who lack common sense and will power. Common sense tells you if you can’t afford it within a single month don’t do it. Common sense says have a back up plan. None do and also his investment predictions are inflated 8% is a gift higher is a rare occurrence. Debt was created to allow for people to manage funds better no abuse it with the I wants.

John August 26, 2014 at 11:00 am

It seems odd to me that Ramsey’s target audience is those people living paycheck to paycheck, yet his programs are over $100.
That aside, I think a distinction should be made between lowest interest rate and lowest effective interest rate. For example, if I have an auto loan at 5% and a student loan at 5.5%, I should still pay the auto loan off first if the tax benefits of the student loan lower the effective interest rate of it to less than 5%. If I’m in the 15% bracket, it effectively goes down to 4.675%. Likewise, people should consider the limits on tax deductibility, especially with college loans and second mortgages.
To your point on the credit cards, I agree. My wife and I each have rewards cards that we pay off every month. Getting 2-3% off most expenses each year is like giving ourselves a small raise.

Justin April 27, 2016 at 3:56 pm

Wow, you are so far off on this. Your comment about paying off credit card with the highest interest first (While that may be true, it is mathematically flawed and ends up costing you money). If math was the reason in the first place you wouldn’t be spending more than you make! I love when people rationalize his snowball method with math when they can’t do math correctly in the first place and are in debt. I was 26K in the hole. I paid it all off in 15 months and I got Dave’s book for free from the library. I will have my house paid off in two years. I will retire debt free. GOD BLESS DAVE RAMSEY!

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