…Even though Dave Ramsey says “Don’t do it!”

I’ve taken the “Financial Peace University” series twice and have been coordinator of the course three times. I have a huge respect for Dave and everything he teaches. He’s made a profound impact on the lives of my wife and I and in my children’s families.

Clearly the guy knows a lot about the proper way to handle money.  He is one of the most respected personal finance coaches in the world.  When he speaks, I suggest you listen.

Dave says “Don’t ever use credit cards!”

Well, I don’t do everything exactly how he teaches…just most of it.  That’s a little hypocritical of me, don’t you think?  One of those differences for me is in regard to the subject of using a rewards credit card for purchases. I’ll just put it out there. I use a travel rewards credit card for nearly every purchase or payment I make that allows me to use a credit card to do so.

There are several reasons that this is a bad idea…even when you pay the balance in full every month.

• It opens the door for getting yourself into (or back into, in my situation) a seriously ugly debt problem. Anyone who uses a credit card must always, under any circumstances, pay off the credit card in full each month before the due date. Let me repeat, “Pay off your entire credit card balance every month before it becomes past due.”
• When you use a credit card for a purchase you won’t feel it as much as when you pay for something with cash. There’s something unsettling about handing over wads of cash when you make a purchase. If you feel the cash leaving your hand, you may be a little more conscientious about your spending than if you pay for everything with a credit card.
• It’s much more difficult to follow a budget when you purchase with a credit card. First, you’ll likely be more impulsive in your purchases. Second, you really aren’t paying for the purchase until a month, or more, later when you have to make the payment on credit card.
• Some charges that you are allowed to make with a credit card will be treated as a cash advance and not a purchase. When this happens, you may be charged an additional fee for the advance which is likely 3-5% or more.

Why I use my credit card, anyway.

• Since I am so passionate about paying off debt, we have developed the discipline to pay the credit card in full each, and every month. I don’t worry that it will become a problem that gets me deeper into debt. Three years ago, it would have been a problem. In all the time since I embarked on my debt elimination journey, I’ve used credit cards a lot, and I’ve paid the balance in full before the due date every month without fail.
• Because of my passion for paying off debt, and because we are closely following a budget, we aren’t spending anything without intention. It doesn’t matter for me whether we are paying with cash or card. If it isn’t planned, we don’t spend it. Discipline in our spending habits isn’t an issue for us, now.
• Since paying with a credit card instead of using cash envelopes makes it much more difficult to stick within a budget, I’ve developed a modified envelope system to monitor my spending for every day expenses. I was tweaking my zero-based spending plan for months before I came up with a system that makes it very easy to maintain a budget while using a credit card for most expenses. It includes a system where we transfer funds for our credit card expenses into a savings account at the time the expense is planned. That way, when the bill becomes due, the funds are sitting in the savings, ready to be transferred to the checking account we use for paying bills.
• I don’t pay debt with debt. First, I don’t want to pay the additional 3% fee for the advance. Second, when you work so aggressively to pay off the debt, it would be silly to put those payments on a credit card.
• I like to travel free via airline. Over the past two years, my wife and I have banked enough points to take up to four free flights. We used to take our vacations close enough to home that we could drive. Now we get to broaden our horizons. Also, our credit card offers other benefits that include travel insurance and rental car insurance. I find that pretty useful.

Would I recommend credit card use to others?

I’ve already described the cautions for using a credit card. You know your own tendencies. Do you have the discipline to pay off the full balance on your credit card by the due date every month? Do you have a budget or spending plan, and can you follow it whether you are using cash or credit card? Do you have a large enough emergency fund, or can you bank some cash while using the credit card so you can ensure you always have funds available to pay it in full when it’s due?

If you you answered “no” or even hesitated with your answer to any of these questions, then I highly recommend you completely eliminate the use of all credit cards. They will only get you into trouble with more debt. Any benefits that the credit card may offer are exceeded by the cost of the debt and the anguish and pain you will suffer later.