DAVE RAMSEY: Get rid of the credit cards, debt



Q: We’re trying to get control of our finances, and my husband wants to close all our credit cards. I want to keep one and use the bill-pay option for monthly stuff like utilities, so we can keep earning rewards points. I look at my way as a method of just re-routing the money and paying it off each month. Am I wrong in looking at it like this?

A:Yes, you are. Life never goes as planned. You can have all the well-reasoned and best-intentioned ideas you want, but sooner or later something will go wrong.

Why not use a debit card that has a rewards system attached? Lots of debit card programs offer the same kinds of rewards programs that credit card companies do, with one big exception – you don’t have to go into debt.

Studies have shown that the vast majority of people never redeem their credit card airline miles. Other studies show that people spend more when using credit cards as opposed to cash. That extra money you spend on things you don’t need is money you could have been saving and investing.

So, where’s the reward?

Q: We were very late on one of our credit card bills, and now it has been turned over to a collection agency. The collection company has offered us three or four different payment options. Does the original creditor accept the agreement, too, if we accept one of the collection agency’s options?

A: In most situations of this type, the collection agency owns the debt outright or they’re directly representing the original creditor. It’s pretty much standard operating procedure when someone has defaulted on a loan.

My advice would be to accept the deal they’ve offered that makes the most sense for you and your current financial situation. It’ll ding your credit report, and show a settlement on the defaulted credit card, but that’s not the end of the world. There’s already a mark against you for it being turned over to collections.

If you want to keep things like this from happening in the future, you need to get control of your finances. Stop playing with credit cards.

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 12 million listeners each week on 575 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

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  • Anonymous

    “You can have all the well-reasoned and best-intentioned ideas you want, but sooner or later something will go wrong.” Saying that all credit cards are bad because of this doom and gloom viewpoint is misleading and also condescending. There is no reason that monthly bills and other purchases cannot be paid with credit cards. The key is simply to manage the spending and pay them off quickly. My husband and I never, ever spend more than we have to pay off and we ALWAYS use credit cards when possible. Why? Firstly, because our cards reward us in the form of cash back. Paying our cell phone bills, insurance bills, groceries, gas and all the other necessities using our credit cards, we routinely earn $20-$50/month in cash back — more when we have large purchases we need to make (and have already budgeted). We never pay a penny in interest and we redeem the cash as soon as it is available. We manage our spending by keeping a budget in a spreadsheet and updating weekly. This keeps us from the temptation/trap of overspending.
    Secondly (and really more importantly but less relevant to the original question), carrying large quantities of cash is unsafe and paying only with debit cards leaves you open to identity theft. Debit cards do not carry the same protections as credit cards when it comes to identity theft. Many do not refund the fraudulent charges and others will still hit you with non-refundable charges if your account is overdrawn because of the theft.
    Thirdly, credit cards offer other benefits. We have used our Discover card’s “price protection” benefit on 3 separate occasions in the last three years to the tune of $380 in refunds for price drops. One of our cards also offers built-in travel insurance, so we don’t need to worry about deciding whether to purchase it independently.
    You are misleading people who are here for serious financial advice and putting them in a vulnerable position when it comes to identity theft and physical theft as well. Just because one person cannot deal with the responsibility of a credit card does not mean you should be giving this advice to everyone.