Why We Don’t Take Dave Ramsey’s Advice

I have to begin by explaining that I actually REALLY like and respect Dave Ramsey. For those of you that don’t know of Dave Ramsey, he’s one of the leading advisers for helping people get out of debt. He’s the first person you’ll come across if you do a simple “get out of debt” search on Google. If you’re in debt, as soon as you are done reading this article, I suggest that you check out www.daveramsey.com and specifically Financial Peace University. If none of that is your style, find some kind of help to get yourself out of debt because going into further debt by taking your dream trip will just make your return home even more miserable.

Now onto the main point…

We WILL NEVER Get Rid of My Credit Cards

Dave Ramsey advocates that you should live a “cash-only” lifestyle without credit cards. In fact, he tells you to cut up your credit cards.

Dave Ramsey

Picture courtesy of Pinterest

This may be a great beginning step for people who are shackled in debt. However, here are the following reasons why Joy and I will never get rid of our credit cards with elaborations immediately following:

  1. We have manageable debt
  2. We live within our means
  3. We treat our credit cards like debit cards
  4. The dollars you spend on credit cards are investments in the form of rewards
  5. The rewards we receive from our credit cards are VERY valuable (and we actually use them)

We Have Manageable Debt

The only debt we have is a car loan but the interest rate is so low that it makes sense to make payments and use the money that we could have used to pay it off on other investments. Although Dave and some other guys say that “all debt is bad debt,” I firmly disagree. If you have a stable job or a contract job with a lot of back up options and money saved away, you can afford to take on debt if the interest rate is low so that you can use the cash that you have now to generate other investments. 

We Live Within Our Means

Joy and I have a budget and we stick to it. That budget includes allocating our income towards short-term investments, savings, retirement investments, giving to our local church and other charities. We do all of this before we start spending money on ourselves. As far as what we spend on ourselves beyond basic human needs, we don’t spend a lot on luxury items or things that lose value quickly and wouldn’t get used more than a couple of times per month. Ultimately, our spending is structured so that we can afford to take several trips per year.

We Treat Our Credit Cards Like Debit Cards

Our bank, like many others, allows you to consolidate all of our investments, credit cards, and other accounts onto one page so you can track your net worth. Accordingly, it allows you to see how much money you have and how much you’ve spent on your credit cards. While Dave Ramsey advocates cutting up your credit cards so that you will only spend what you have, his intent is to get people to be disciplined enough to not overspend. Joy and I built that discipline on our own thanks to having responsible parents that modeled a lifestyle of not being in debt. That discipline allows us to spend as if our credit cards are debit cards, track expenditures through the month, and ultimately pay off exactly what we spent at the end of the month without carrying any balances.

The Dollars You Spend on Credit Cards Are Investments in the Form of Rewards

It is a well known fact that banks take your money to use for their investment ventures and return you a small amount of interest. In the same way, if you spend within your means on a credit card as you would on a debit card, you are using the dollars of the bank that funds your credit card as an interest-free loan for the month and getting rewards from them all at the same time. Ultimately, your cash stays in your bank earning a small amount of interest for the month while waiting to be paid out on your credit card bills as your credit card rewards accrue simultaneously.

As I said earlier, I am going to spend money on groceries, gas, going out to eat, etc. I could receive no rewards for using cash on those purchases or I could slowly accrue large masses of rewards points and miles over time by using credit cards. Why would I not want to earn 2x, 3x, or even 5x rewards on certain purchases that will turn into airline tickets, hotels, gift cards, or another reward later on by putting that on a credit card?

The Rewards We Receive From Our Credit Cards Are VERY Valuable

One of the chief justifications that Dave Ramsey uses to advocate for people to cut up their credit cards (on top of the obvious reason of being saddled with debt) is a statistic that states that 70 percent of frequent flier miles go unused. I am not sure where that statistic comes from but Joy and I are clearly in the other 30 percent that use our miles and points. In fact, the rewards that we receive from our credit cards far exceed the annual fees that we pay and have given us the return of literally hundreds of thousands of dollars over the past 10 years. You read that right…HUNDREDS OF THOUSANDS OF DOLLARS in benefits over the past 10 years. 

If we didn’t get bonuses from credit cards and didn’t earn rewards from stuff we would already buy with cash even if we didn’t use credit cards, we never would have had the opportunity to go visit friends in Cambodia, or have our 5th anniversary in Fiji, or experience an over-water villa in the Maldives, or fly Singapore Airlines First Class, or…I could go on and on.

We used our miles to fly to Cambodia to see our friends

We used our miles to fly to Cambodia to see our friends

We used our miles for flights to Fiji and points for our hotel for our 5th anniversary. Fiji was a dream trip for Joy.

We used our miles for flights to Fiji and points for our hotel for our 5th anniversary. Fiji was a dream trip for Joy.

I wouldn't have spent $2000 on an overwater villa even if I could afford it. It was fun to try for FREE though.

I don’t earn enough to spend $2000 per night on an over-water villa in the Maldives. But I had the points to stay for FREE.

I would never spend $9,000 per ticket per person to fly Singapore Airlines if I was a millionaire. It was a dream to do it for free though!

It was a dream to fly Singapore Airlines First Class for free. This would have cost $9,000 per person otherwise.

In short, credit card rewards have given both of us the opportunity to travel spontaneously to the point where paying in cash would have reduced the money contributed toward our investments. These rewards also help free up the cash we would have used to pay for airfare, hotels, or more expensive things like scuba diving lessons, sea plane flights, expensive dinners, once in a lifetime tours, and more.

Flights paid with miles freed up the cash to spend on this once in a lifetime opportunity diving with a whale shark.

Flights paid with miles freed up the cash to spend on this once in a lifetime opportunity diving with a whale shark.

Think Like A Millionaire

I had someone ask me once if maybe I shouldn’t be indulging in any of these experiences or taking trips if I can’t afford to pay for them in cold, hard cash. All I can think of in response is that if the millionaires I’ve met use their miles and points to enrich their lives while putting their dollars to work in other places, that works for me too. I firmly believe this same millionaire strategy can work for you as well!

My Advice To You

If you’re in debt, use those links above or another source to get help on getting out of debt quick – you owe that to yourself. Also, don’t give up on your dream trip(s). Keep it in the back of your mind and work that much harder to get out of debt so you can make it a reality the smart way. Credit cards and bonuses won’t be going away (at least in the US) anytime soon. Once you’ve built up your savings, restored your credit, and have more discipline, you too can open up a card to get a bonus and earn rewards that will free up your hard earned cash for other things. Like many things credit cards can be a great tool when they are used well.

If you’re not struggling with self-control in your spending, I suggest going my page “What’s In My Wallet” and reading about some of the cards that I have to see how they could work for you. I would also really consider the Hyatt Visa and the IHG Mastercard simply because even after you’ve use the bonuses that come with sign up, you get a free night every year just for paying the $75 and $49 annual fees respectively, which is a steal.

Finally, whether you are or aren’t in debt, remember that all trips don’t have to be grandiose. A short road trip or stay in cheap hotel, hostel or cabin may be all you need to decompress if you are working your way out of debt or don’t have a lot of money. Big dreams start small and all dreams require time and money. Use what you have now to invest in your future, to include experiences that will last a lifetime.