2/21/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

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

"Use credit cards responsibly?"

Dear Dave, 

Why are you against the responsible use of credit cards? My wife and I use credit cards for everything, and have paid them off every month for the last few years. By using them we have received two $4,000 rebates on cars, we have the equivalent of 10 round-trip air trips saved up and we receive annual cash rebates. It also makes record keeping easier, and provides meaningful coverage like extended warranties. 

Ira, via e-mail 



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Dear Ira, 

The phrase "responsible use of credit cards" is an oxymoron. Let's look at those car rebates. The GM card offers a 5 percent rebate, so if you got $8,000 worth of rebates that means you had to spend $160,000 to buy two new cars that lost about $6,000 in value the day you drove them off the lot! You call this wise or responsible? It is neither, sir. You've been playing with snakes, you've been bitten and you didn't even realize it. 

Studies conducted by Dunn & Bradstreet show that people who use credit cards instead of cash spend an average of 12 to 18 percent more. With these great perks you mentioned, you're getting back somewhere between 1 and 5 percent, depending on the situation, but you're spending two or three times more than usual to make it happen! I don't call that wise or responsible. 

So yes, I'm against what you call the responsible use of credit cards. You're not going to beat these multibillion dollar companies at their own game. It's their job to figure out new and better ways to separate you from your money. If you think you're going to win against them, you're naive. 

Dave 



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