Let me start by saying, I like Dave Ramsey. I am a Dave Ramsey fan. I’ve completed his Financial Peace University. I am prepared to “Live like no one else, so I can LIVE like no one else.” But I have to disagree with him on at least one account – no credit cards at all.
I advocate that you don’t use credit cards. My wife and I switched from putting everything on a credit card and paying the balance off each month to using a debit card. We closed 14 different credit and department store cards. It was one of the best financial decisions we’ve ever made. However, I still have one open credit card and one open department store card.
I have been asked if and when using credit cards makes sense. As a general rule, I tell people to never use a credit card. Mainly because many people don’t have sufficient self-control to manage credit cards. So don’t even put yourself in the situation to be tempted. However, if you can exhibit self-control, then there are three reasons I use a credit card.
My three reasons for using a credit card
- Avoid multiple withdraws or overdraws from bank errors
I don’t like someone having direct access and authorization to withdraw funds from my checking account. For example, I only put my electric, cell phone, and gas bills on my credit card. That’s it. I don’t use it for anything else. My reason is that I have known a number of individuals who had a bank or merchant, in error, make a withdraw several times or withdraw the wrong amount from their checking account. In 99.9% of the cases, you will get your money back. However, that mistake can be costly until it’s resolved. Maybe you won’t be able to buy food or you end up with overdraft fees.
- True emergencies
I really hesitate to even mention this reason since it can be too easy to call something an “emergency”. The purpose of an emergency fund is so you can cover emergencies and not have to rely on credit. However, you can’t always get to the funds in time. Let me give you a recent experience. A little over a month ago, I received a call at 1AM with news of a death in the family. Just 24 hours later, my family was on an airplane. We were gone for more than a week. Since we needed to book plane tickets, a rental car, hotel rooms, etc. in such a short timeframe, I relied on my credit card. Having said that, I paid off the total amount of the trip from our emergency fund within one week of returning home. But again, make sure it’s an actual emergency. As an aid, here’s a list of 49 non-emergencies.
- Discounts or money back
So I’ve explained why we have one credit card. I want to now briefly explain why we have one department store card – Kohl’s. We love shopping at Kohl’s. I actually interned a few years back at the corporate office and gained a real appreciate for the organization as a whole. As a result, we do a lot of shopping at Kohl’s and receive coupons each month for great discounts. The only requirement to get the discount – use your Kohl’s card. Since we’d be shopping there either way, we might as well get the 20-30% discount. Just make sure that coupons don’t end up costing you more money because you spent more than you would have normally.
If you use a credit card, do so sparingly and pay it off monthly
I really can’t stress this point enough. As I mentioned before, I usually just make the blanket statement that you should never own or use a credit card. But I’m a realist and recognize that there are situations when credit cards can make sense.
What other sound reasons might cause you to keep a credit card just in case?