One random day five years ago, I was eating lunch at home and messing around on this new thing called an “iPad”.
Because I’m a money nerd, I went to the iTunes store, searched for personal finance and I found Dave Ramsey’s app. Before that $5 footlong lunch, I knew nothing about Dave Ramsey. By the time I finished my meal, I was absolutely hooked on his brand of no-nonsense debt elimination advice.
From that point forward, I got pretty serious about following Dave Ramsey by the book because I wanted the financial peace that he spoke about so much.
Dave recommends people should strive to have no debt whatsoever – no car loans, no student loans and eventually no home mortgage.
He even includes credit cards into that mix as well.
Prior to this point in our personal finance journey, both my wife and I were good about not carrying a balance on our credit cards each month. We (I mean I) had a lot of other debts coming into our marriage, but credit cards were never a major problem for us.
Nevertheless, after hearing from Dave that more than 100 million Americans do NOT pay off their credit card balance every month, we agreed to get rid of our credit cards in an effort to be smart and fiscally responsible. We would use our debit cards or cash going forward.
Fast forward five years later, we’ve gone back to credit cards …
Here’s 3 reasons why:
1. Discipline Through Monthly Budgeting
During the same period of time while my wife and I had rid ourselves of our credit cards, we became very skilled at budgeting because of the lessons taught by Dave Ramsey.
On the first of the month, we get together and plan out our monthly expenses. We discuss how much money is coming in and how much is going out.
We’re big fans of Mint.com and their expense tracking system that syncs up with your bank, investment and credit card accounts.
Because of this discipline we’ve attained through monthly budgeting, we honestly feel that there is no difference in us making purchases with our debit cards or our credit cards. The same transactions take place whether we have a credit card or a debit card and they are tracked in the exact same way.
2. Points Are Fun
Last month, my wife and I went to Manhattan for a quick getaway weekend. We flew direct from Detroit to La Guardia and stayed near Central Park for two nights. The flight and the hotel cost around $1,500.
We paid $0 … because of points.
I’m sorry, but no matter how you slice it … That is freakin’ awesome!
Now there may be some debit cards out there that have a decent points program, but the one I had from my bank (PNC) was LAME. We were able to earn points for the “opportunity to purchase discount goods” from their promoted sponsors … AKA, I was able to get 10% off of my 1-800 Flowers orders. Boring!
3. Debit Cards Have Flaws Too
I travel a lot for work and have to rent a car from time to time. My company’s preferred rental car partner does not accept debit cards.
When I stay at a hotel and use a debit card, they hold $50-$100 from my account during the time of my stay. That jacks up my budgeting process when the transaction doesn’t clear for a week or two.
I’m required to use a credit card at work. In order for my company to reimburse me for my expenses when I travel, I need to put it on an American Express in my name. I tried not using that specific American Express card and my CFO was not pleased. Using a debit card is not more important than my job.
Other benefits like asset protection, free baggage and rental car coverage are also hard to pass up.
The Case for Debit Cards
Now, I don’t think everyone should have credit cards.
They can be very dangerous for people who do not have a strong personal finance mindset. The average household has $132,158 in debt — $15,675 of it on credit cards … so you know they are not paying that balance off each month.
Using debit cards forces you to only spend money you ACTUALLY have. It acts just like real cash. If you really want a motorcycle, but you don’t have enough money for it, you can’t have it.
Credit cards can give people without the personal finance discipline a false reality of what they can afford. Over time, that ability to buy whatever you want on credit cards can put you into a massive hole of debt. That debt can affect your job, your marriage and your relationship with your family.
My recommendation would be to get educated about smart monthly budgeting and the dangers of credit cards before getting one.
I learned A LOT from Dave Ramsey and still follow the majority of his principles today. I’m even learning how to become a Financial Peace University coach at my church!
But with any advice in life, trust but verify.
Our verification process took 5 years, but now we know that we have the discipline to handle those points producing plastic wonders. We’ve tamed the beast.