10/2/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"I keep my credit card for airline miles."

Dear Dave,

In the last 18 months I’ve cleared up all my debt except for half of what’s owed on my house. I have one credit card that I want to keep, though, because I get sky miles with it and I’d pay it off at the end of each month. Is that a bad idea?

Mitch in Salt Lake City, UT


Dear Mitch,

Yes, it’s a bad idea. Many debit cards now have airline miles associated with them, so there’s no reason to take a chance with credit cards. 

You’ve done a really great job of managing your finances lately, but the reality is that 78% of Americans don’t pay off the balance on their credit cards at the end of the month. Another thing, Mitch, is that studies show people spend about 12-18% more with credit cards than when they use cash. 

Personal finance is 80% behavior, so this means that living on less than you make is a matter of controlling yourself, not a matter of math. Visualize this, Mitch. You’ve got a $50 bill and a credit card lying on the table in front of you. If you look at these two items, the $50 bill is a more emotional thing and it will hurt more to turn it loose. 

Do you see where I’m going with this? If it hurts more to let go of the cash, then you’re not going to spend as much. If you don’t spend as much, you’ll be able to save more and build wealth!

- Dave

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