Can you use credit cards responsibly?
I’ve used credit cards irresponsibly in the past. You too, huh?
I have since learned to responsible credit card use and I’d love to talk you through how.
Before I start – I’m going to debunk a few things here.
Are you ALLOWED to use credit cards following Dave Ramsey’s plan?Yes, you are…
Yes, you are – because you are in charge of your own decisions.
Is it recommended? No, credit card use is NOT recommended when following Dave’s money management plans.
Why should I not use credit cards?
Well, let’s get that all out of the way first.
Credit cards can be dangerous. Not the, bite your toes when nobody is looking kind of dangerous – but financially risky, for sure. They are far too easy to use. They can remove temporary pain; which feels nice now – but hurts really bad in the future. Credit cards can easily tempt you to overspend. Credit cards give you an easy way out of a pickle, instead of forcing you to live in the moment and take care of your immediate needs WITH your immediate funds.
For those of you that are in credit card debt, I recommend that you cut your ties. Learn to manage your money without them before attempting to use credit cards responsibly. This is a really important step. Getting a handle on your money means YOU getting a handle on your money – not your credit card.
Have cards? Cut them up. Too shy? Put them in the freezer. Lock them up. Decide that you’re going to manage money solo.
Stay in the driver’s seat with your money.
Recently I asked a client about how she’d describe her relationship with money. She used this analogy.
It’s like a friend that’s driving me around; and I point out where I’d like to stop along the way, but I’m not in control of when we stop or not – or what we spend. I’m just along for the ride.
What does she want it to look like?
She wants to drive the car…and stop where she wants to stop, when she wants to stop. She wants to drive.
I get this comment a lot – “Well, I pay off my card every month. I don’t ever pay any interest….but I’m always surprised at the amount of the bill. Where did all of my money go!?” When you’re trying to get out of debt and want the convenience of a card, switch to your debit card. Credit cards can exaggerate your present and rob your future. Similarly don’t let a piece of plastic have that much control over you.
Credit cards can exaggerate your present and rob your future. Don’t let a piece of plastic have that much control over you.
Make a plan for your money. All of it. 100% of your income should have a plan attached to it – paying off bills, going to savings accounts, paying off debt, padding retirement – etc. Above all, every dollar should be accounted for.
If you are out of debt (mortgage is okay) and your emergency fund is fully funded with 3-6 months of expenses – and you’re working hard on baby steps 4/5/6. (15% in retirement, kids college contributions, and mortgage payment acceleration) then responsible credit card use is a-okay in my book.
How can I use a credit card responsibly?
Know how much you’re going to spend on it – before you charge it. Have that money ready and waiting in your checking account to pay for it.
It’s actually kind of a pain in the butt. It would be easier to just use your debit card. But if you TRULY take advantage of the free flight, or the points, or the cashback rebate – then, by all means – be inconvenienced a bit for your Costco rebate check.
How do we practice responsible credit card use?
We charge a few of our recurring payments on our card, gas, and any travel purchases. I know precisely what we’ll be spending each month, and it’s ready and labeled in my checkbook on a sticky note to pay on that card.
You aren’t going to get rich using a rebate card. In fact the risk is that you will go broke using a credit card. But if you are someone that just can’t cut it up – and you’re in a position where you don’t get tempted, you do you.
What about my credit score?
What about it? Do you need it – no. You CAN manage life without it – because when you have cash….people will take your money. Is it harder to get a mortgage? Yes, it can be. But there are underwriters out there that will look at your income, your expenses and your history without a credit score. Your credit score is an evaluation of how well you manage debt. I want you to manage yourself out of debt so that you can build wealth.
So, in short – I don’t fight with my clients about credit card use. I don’t have hard and fast rules about giving them up. However, I do have opinions, and I certainly am not shy about sharing them in order to see others succeed.
There you have it. Can you use credit cards responsibly? Sure you can…but will I recommend it? Not likely. Will I shame you for it? Never.
Thank you for joining me on my my journey to influence.
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