Credit card goofball
Question: Mike just had lunch with a friend who bragged about having credit cards. His philosophy is that it's all right to have credit cards as long as you pay it off next month. Is that true?
Dave Ramsey's advice: Your friend is a goofball. Spending $3,000 at 4% interest is $120 a year. That means before he started all this nonsense, it means he made $10. I guess he's a REAL GENIUS! His time must be worth about 10 cents an hour. It's this kind of thinking that gets people in trouble.
Besides, you spend more with plastic because you don't register the emotional pain of paying with cash, according to a Dun and Bradstreet study. Your friend is an accident looking for a place to happen.
Dave then took it to an idea condition.
Well even if you were able to borrow/ take out $3000 from a credit card interest free for a year (including free from any other fees) and you then put that money into a saving's account at a 4% interest; you will make $120/yr or $10 a month at best. Got that? You made money off that deal, Right? Well he says WRONG its not worth it. You are "walking a very fine wire" or "playing with snakes" as he put it. One little mistake and say goodbye to that plan! The mistake doesn't even have to be your own. The credit card company might "lose" your payment. Add on all kinds of fees now. Like late fees ,over limit fees and others like just because fees. It will take a long time to clear that up. Worth it to you now?
What if you were so "smart" and repeated that with other cards? Well now you are reported late and all the other Credit Cards issuers sees that and they now too hike up your interest rates with them! Try fixing that. When the smoke clears what do you have left?
See they are also betting that you will make a mistake like actually forgetting to pay or run up other charges on the card with the special deal. So anything you pay down will actually pay down the ones with the lowest interest. So you are stuck paying high interest until you pay it all off. So agian you make less than thought you would. It gets worse if you put the "savings" in a CD and get hit with early withdraw. And lastly pay taxes on the interest you "actually made". It's a gross interest and not a net interest. There's no write off for you on this "investment" loss.
So that's under somewhat ideal conditions which brings us back to the beginning. Try messing with credit cards with your luck now within grace periods. Try fighting temptation of buying more and getting more in debt. Try a day-month without a credit card or even debit and carry enough cash around for your day to day purchases. You'll see your need and want factors change. That's the ouch that Dave talks about. If you still don't get it and you pay only what you need and pay that off every month without fees, then with credit there's still a risk about if it got paid or not. With cash there's no doubt about it, nobody will come back looking for you.
You dont normally pay intrest if you can pay it, right?"
Not quite interest-free. Credit cards come with finance charges--the cost the card issuer charges for
YOU to use THEIR plastic.
This is what the card issuer charges YOU to use THEIR card.
In Dave's article "The Truth about Credit Cards" states that there is no positive to credit cards.
That may be true for him but not for everyone or even the majority. Yes there are some people that
don't pay and it adds up interest but there are many people that credit cards benefit. (Building up credit)
If you do get behind on a payment that is when the credit card starts to not be useful. But you cannot
that all credit cards are bad. Calling him a goofball and sarcasticly saying he is a genius is pointless
because Dave's whole idea of credit cards having no positives is not genius either.
If you are unable to manage the discipline to pay your card off every month... don't use them. But if you can then i dont see any problem - it is a free loan that puts you a month ahead with income and offers you rewards (cashback, points etc) for doing it. Credit Card company's lose money to people who use their cards this way.
Also, what are these 'Fees' that people have been mentioning? I have never had a mystery fee and i pay my cards off online so there is no possibility of late payment.