Credit Cards and Dave Ramsey Way

Credit cards, they are a polarizing thing.  Some will tell you never to obtain one, others will declare you need one, or you won’t be able to rent a car/house/apartment, buy a house or car, or what if some emergency comes up.  I will examine both ways in this blog. 

Personally I have 3 credit cards.  I use all 3 for different things, one is all my auto-payment bills (utilities, internet) one for work expenses (reimbursement), and another for literally emergency/pleasure use (think going out etc.)  I track all purchases when statements come in monthly.  I receive a paper bill each month… never auto pay with a credit card.  I do not open or use a card simply for earning “points” or “miles” as I think and believe both are a scam.  I cash in my “earnings” each year and do something with them, usually buying items off Amazon as that tends to be the best use.  I tried to use it for airfare, and quickly found out the price of a ticket in points was unreal compared to just booking as usual.  With my method I am able to track my expenses by category and find out exactly where I spend too much, and adjust as necessary.  I always pay the bill in full, and have never paid a fee or interest.  Don’t feel good for me as the credit card company still makes money off me, as the swipe and usage fees charged to the merchant on each swipe are not avoidable. 

I bought my house in large part due to my 820 credit score and got a lower interest rate to boot.  I was also able to lease a brand new Toyota Tacoma after my old vehicle finally kicked out again due to said credit score.  (I have since paid it in full, and owe nothing on it.)

This isn’t to say you should go get a credit card, many get by without, quite a few by choice, and you can still buy houses/cars and rent houses/cars without a credit card.  It’s just a longer, tougher, nerve wracking process.  The point of this blog isn’t to whack anyone without a card, it’s a choice, I live my way, you are free to live yours.

Now for the folks who need/needed or understand Dave Ramsey’s advice. 

Some do not need a credit card, nor should they own one.  Credit cards create a false euphoria when used, you simply swipe it, and are worry and carefree until the bill is due.  Even then they offer a convenient “minimum payment option” of a nominal amount say $40.  In addition each time you log into the website to view/pay bill you get a prompt saying sign up for paperless billing, quite literally every time, there is no way to opt out.  Mess up and click on the link, well good luck getting taken off paperless billing.  They bill it as a “green initiative….you are doing right by the environment.”  Give me a break; a paper statement of roughly 3 pages, and a mailed envelope?  That isn’t causing the ice caps to melt Al Gore.  These are corporations and while they make money each time you swipe the plastic they make even more when you opt out of a monthly paper statement.  But wait there is more…

You forgot to pay the bill this month…. just by a day darn it!  Well, you get hit with a late fee, your interest rate goes from probably 17% or so to about 38% which, oh by the way, they can do since that is the agreement you agreed to when you applied.  Of course, you didn’t read the fine print, you needed the card to earn miles or points.  Oh, they also report that missed payment to the 3 credit bureaus, watch what happens to the interest rate on your other cards, suddenly that 17% turns into about 30%  But that’s ok, you only missed one payment and you will make it up next month.

It not just fees and extra interest, it’s your entire buying pattern that changes.  Suddenly you find yourself going down each aisle at the grocery store, you only went there for 8 things, but your basket turned into a cart full, which turned a $25 total into about $175.  But you had to get 3 more bags of chips because they are on sale, and you earned “points.”  Ditto for those spices in the spice aisle that will migrate to the back of the pantry, but hey you earned a few points, and they were on sale… the cool red tag said so.  Now you are swiping so freely you lose track and forget how much you spent… hello, surprise bill.  You make the minimum payment but keep spending, you do so because, well you always get a bonus in December, so you will pay it off then.  You don’t get the bonus, or even if you do the interest compounds daily, and is on your bill monthly.  All of a sudden that 1-3% cash back doesn’t look so great on 19% interest charges now does it?

The last and most worrisome is deferred interest charges.  And yours truly almost got caught in this.  I had just bought a house, and my down payment took every dollar that was not in my retirement account.  I know cry me a river!  At my house I had no washer, dryer or fridge.  The dishwasher was quite literally on its last leg, and the oven/stove and microwave had been through a lot.  In fairness the family I bought it from had moved out 3 years prior and let their grandson live there rent free.  Everything else was fine, but I needed appliances, using my parent’s wasn’t going to cut it.  Enter Pacific Sales, conveniently located inside the local Best Buy.  They had a big sale going as it was a three day weekend, and to be fair I shopped around and for all seven appliances I needed it was the best deal by far.  The total came to about $3,500 I reckon, then after the installation and “other” parts required for said appliances we were at about $4,000.  Obviously I didn’t have the kind of coin, and right on cue they had a financing offer.  No interest for 1 year!  Just get the store branded credit card.  Even better I was told 3 months of no payments applies as well…. how great 1 year and 3 months of zero interest!  There’s a catch, I will get to it later.  2 months later, the tires needed to be replaced on my Explorer, about $1,100 worth.  Of course, they have you by the proverbial balls, since they can pull the “your car isn’t road worthy so we cannot let it leave card.”  Again, they pulled a great offer, 1 year no interest, and $200 off.  I didn’t want to do it, but hey… why not right? If you are keeping score at home, I now have 2 store cards, and about $4,800 in monies owed.  I was making minimum payments on the balances each month, $100 on the appliances, $50 in the tires… because…. Well, time value of money, right?  I was going to pay them off later, but had other things to worry about. 

Well at the bottom corner of the statement, there is/was a box, it stated deferred interest.  This box was the way the store makes money.  You see the store likely is losing on the deal offered up front, but they stand to gain a large amount from these deferred charges.  Luckily for me, in both cases I caught this before it became a problem at all.  To give you an idea, had I been a month late on the tires, the interest would have been $350, on top of the $900 I would have paid.  Had I had just paid in full that day, $1,100 would have been the damage, instead I would have paid about $1,250.  The appliances would have been far worse, deferred interest would have been about $1,500.  Again, look at the deal upfront, and the deal had I not paid in full in the “promo-time.”

Don’t believe me?  Check out these quotes from the earnings reports of Macy’s and Nordstrom

Macy’s executives disclosed on Tuesday that rising delinquencies cut credit card revenues to $120 million in the second quarter, down $84 million from the previous quarter. While Nordstrom’s credit card revenues rose 10% in the first half of this year, company executives said Tuesday that delinquencies are now above pre-pandemic levels and could “result in higher credit losses in the second half and into 2024.”

US department stores see higher credit delinquencies amid strained spending

Credit cards are big $$$ for these corporations, and a large part of the earnings numbers.  Keep in mind interest earned is basically “free money” to these groups.  They only have to mail out a statement each month.

The last item I wish to address is when you pay with plastic it truly is “buy now, pay later.”  Items purchased may or may not show up on the next bill.  Take this for example, I paid for a tank of gas Tuesday this week, in the amount of $80, I used my trusted cash back card.  Well, my statement closed Monday night, so the gas I bought will not be on Septembers bill, it will be on Octobers.  Let’s just say in September I owe my house insurance, in addition to my other utility/recurring expenses, well my October bill will be higher thea I likely budgeted.  This is another trick the credit card companies do not want you to know.

In closing I do not hate credit card companies, nor do I completely agree with Dave Ramsey that you should not have one.  I will agree with him on the fact it creates bad buying habits, and unsafe financial practices. 

Use my example, if you are not careful, those appliances, or tires quickly become very expensive.  Dave doesn’t need me shilling for him, he offers and does good things, especially for folks who find themselves not realizing the pitfalls of “2% cash back.”  If you don’t carry a card… more power to you. I don’t judge, if you messed up previously… I don’t care, just don’t do it again.

As far as renting a car goes, yes, if you have no credit card it may be tougher, may even need to check a couple of companies to rent you one, but you will find one.  As for buying a house/car, sure there will be more hoops to jump through and you may need to shop around for a bank who will “manually underwrite you” but if you qualify for the loan, you get it.  Federal law. 

Johnnie Does

PS check out the value of those “points” I think is a good site, it will show you the best/worst uses for them, and you can see firsthand how some banks…cough…Citi… cough, devalue points if you use them certain ways.