By Dave Ramsey
Q: I live in Alaska, and I’m considering using a credit card for the airline miles. This would make it easier and cheaper for me to visit my family in the lower 48. Is this a good idea?
A: What you’re talking about sounds great in theory. The problem is that it doesn’t work out so well in the real world. Did you know that 78 percent of all airline miles are never redeemed? And if you’re one of the 22 percent who attempt to cash in on them, you’ll find that the airlines make it virtually impossible for you to travel when you want, how you want or even where you want.
Now let’s look at the credit card side of things. Did you know that studies have shown that you spend more when you use plastic than when you pay with cash? Cash has an emotional element to it. When it leaves your hand, the pain centers in your brain activate. A study at MIT actually proved this to be true. It also found that those pain centers are not activated when you pay with plastic.
Here’s the bottom line: With a few very rare exceptions, you’re much better off not chasing airline miles by using a credit card. The vast majority of people who play this game find themselves with nothing but debt at the end of the day. If you’re really interested in airline miles, I’d suggest looking into a debit card program that offers this perk. With a debit card, you’re not borrowing money. You’re spending your own money straight from your own bank account.
If this credit card airline miles thing worked so well for the consumer, the card companies would be going out of business. More than anything, it’s a bait-and-switch. And the bait is attached to a hook that takes money out of your pocket and puts it in theirs.
No magic solution
Q: How do you feel about debt management companies? Can they actually help you reduce and get out of debt?
A: My advice is to stay away from debt management companies. If you go to the Federal Trade Commission’s website, you’ll find that debt management companies receive more complaints than just about any other type of business. In other words, tons of them are operated poorly to the point of incompetence or they’re just plain scams.
Debt management companies don’t wave a magic wand and make your problems disappear. The only way a creditor will take less than they’re owed is if you’re way behind on payments and they’re afraid they won’t get paid. And if it comes to a settlement situation, you have to watch your back. Always make sure you get any settlement offers and agreements on your own and in writing – no exceptions. And never allow a creditor to have electronic access to your bank accounts.
But the big problem is that you need to fix your behavior when it comes to handling money. You can do that a lot cheaper than any company. But if you don’t get control of your money, start living on a budget and living on less than you make, your debt problem is going to hang around your neck for the rest of your life
For more financial help, visit daveramsey.com.