One of the biggest debates in personal finance is whether or not to use a credit card. One of the biggest opponents of using a credit card is Dave Ramsey. He advocates not to even own one because it opens you up to overuse it and generate debt. Instead, he says you should use a debit card which gives you the same privileges as a credit card.
Dave Ramsey has a great point as the average debt per household with credit card debt is $15,799, meaning the people who go into debt are doing it in large amounts. One easy way to eliminate this problem is to cut up the card, right?
For some, cutting up the card might work because it removes the easy access to extra spending. However, the credit card debt is the symptom rather than the problem. The real problem is that people who accrue debt don’t have control of their money and fall behind on their bills. Trust me, I racked up over $50,000 in debt ($4,000 in credit card) so I know the problem, and I’m not judging anyone!
When I finally started to pay attention to my spending, I got control of my money; here’s what I did:
1. Complete a current assessment
2. Track your spending
3. Create a spending plan
4. Monitor plan and adjust as necessary
5. Save some money
6. Attack your debt
I also transitioned to using a cash budget which helped enormously because it helped me figure out where my money was going each month. It also made me spend wiser because it was hard to drop a Benjamin on a stupid purchase… much harder than making a simple swipe!
Even though we switched to a cash budget, we still use credit cards now. The main reason I never ‘cut them up’ was because I needed them for work. Sure, Dave says you shouldn’t work for a company that makes you use a corporate credit card, but I really didn’t have the guts to stand up to the large corporation when I was desperate to work for them. Plus, I like the perks.
When I graduated college and all of the way until 2011, I traveled for work and gained an affinity for credit card points and hotel points. Since I traveled every week and charged the expenses on my card, I amassed points very quickly. Someday I’ll talk about my points and how I used them to pay for flights and hotels, but for now just trust that I like them a lot!
The key is to only own credit cards if you can control your spending. If you’re using them to finance a lifestyle you couldn’t normally afford, then cut them up! Here are the three types of people who shouldn’t have credit cards:
1. The Supplementer – You don’t pay off your balance in full each month
2. The Impulser – You spend more at the store using a credit card than you would using cash
3. The Big Timer – You like to impress your friends by picking up the tab
Unfortunately, I’ve been all three!! However, I’m now under control, and we are able to control our credit card spending while benefiting from the points. We still use our cash budget each month for things like “Entertainment”, “Groceries”, and “Clothes”. However, most other expenses go on the card.
If you’re trying to get out of debt and want to take control of your money, I recommend switching to the cash budget. However, if you’re in control of your money and feel you don’t spend extra using a credit card, then I say go for it.