Dave Ramsey has helped millions of people escape debt through his practical approach to personal finance. But that doesn’t mean he understands credit card rewards. While his efforts are commendable, I find discomfort in some of the misleading information he spreads. This video specifically addresses why, in this instance, Dave Ramsey might miss the mark.
In this brief article I’ll breakdown of some of the key points discussed in this video:
Interchange Fees and Credit Card Use:
A considerable portion of credit card revenue comes from interchange fees, charged by credit card companies to merchants for processing payments. These fees are embedded in almost every purchase’s price. Thus, those who refrain from using credit cards indirectly contribute to the costs for those who do.
It’s crucial to note that this doesn’t justify overspending, as Ramsey previously mentioned. But people do benefit from credit card rewards. Credit card companies offer these incentives not to encourage more spending, but to take a larger “share of wallet.” Which is credit card industry speak for the percentage of total spending that the card is used for! This increases their earnings through interchange fees.
Credit Card Rewards and Users
The best credit card rewards often go to individuals with higher credit scores and incomes. Credit card companies target these demographics because they are less likely to overspend and default, making them profitable due to higher interchange fees. Smart and affluent individuals indeed take advantage of these rewards, not because they’re easily swayed, but because they comprehend the system.
Credit Cards and Wealth Building:
No one ever said you can build wealth with credit card rewards. But using credit cards or their rewards doesn’t automatically impede wealth-building efforts. Overspending is the actual impediment. That’s what affects your capacity to achieve financial stability. Utilizing credit card points doesn’t undermine savings or retirement planning.
Vacation Preferences and Critiques:
Possessing a credit card with travel benefits doesn’t restrict travel choices. Many people prioritize family time over extravagant vacations. The location is much less important than the company you keep and the time together. Finding a great deal shouldn’t draw criticism because it’s not Cabo. Ridiculing someone for selecting family time in a less opulent location seems unjust.
Dave Ramsey’s Perspective
Ramsey’s views on credit cards lack firsthand experience with modern credit card services. Almost nothing about modern credit cards was available the last time he used a credit card. He hasn’t witnessed the advancements and conveniences credit cards now offer. He completely overlooks advances such as categorized spending reports, automatic personal spending limits and fraud protection!
Credit cards are tools!
Ramsey’s opinions on credit cards might frustrate some, but it’s vital to recognize that credit cards are just tools. They can be wielded wisely or misused. The key is to equip people with accurate information so they can make informed financial decisions. If credit cards don’t align with your financial goals, then don’t them. Ultimately, it’s about informed choices and responsible financial management. If you understand credit card rewards programs, you can find ones that add benefit for your circumstances.