Not A Deal Breaker But Dangerous

Kaylee uses a Discover card she pays off once a month. Once a year, she gets a few hundred dollars back. If she doesn't carry a balance, what's wrong with continuing to do this?

QUESTION: Kaylee in Los Angeles uses a Discover card she pays off once a month. Once a year, she gets a few hundred dollars back. If she doesn’t carry a balance, what’s wrong with continuing to do this? Dave offers his thoughts.

ANSWER: Certainly it’s not going to cause you to go bankrupt. I look for what we call in business “best practices.” If you’re in business and you’re getting ready to do a marketing campaign marketing a book, then you talk to other people who have done successful book marketing campaigns, and you find out what their best practices are and emulate them because you want to be successful like they were.

I’ve never met a millionaire who said, “I made it all with my Discover points.” Instead, I run into hundreds of thousands of families who, with the best intentions of paying it off every month—and you’ve actually done that, I’m not disputing that—but somehow wandered into credit card debt and look up and they’re $80,000 in credit card debt. They lose by death by a thousand cuts, not by one big move of stupidity. I don’t think you’re going to do that because I think your family, long before you ever heard of Dave Ramsey, is very disciplined, and you guys are on a budget. So the credit card is not killing you. But my contention to you would be why play with snakes just because you’ve managed to not get bitten for a few hundred dollars? That’s really what it is.

I’m a very disciplined financial person. I could probably use a credit card and be just fine. I just don’t want to take that chance. There are tons of studies that show that when you spend with plastic, particularly when you’re getting bonus points for spending on plastic, you have a tendency to spend more. Again, I think that would apply less to you than it might to someone who’s very impulsive and rationalizes their impulsiveness with their Discover points they’re getting back.

Studies have shown us that pain centers are activated in your brain when you pay cash or even when you use a debit card. Some of the debit cards now have rewards. I endorse a company called PerkStreet, and they give rewards back on the debit card. I don’t have a problem with that. The problem is that as disciplined as you are and as smart as you guys have been with money, it’s almost humorous to think how hard you’re working for $200.

The debit card is the same convenience as a credit card as long as you have money. I use my debit card frequently. I don’t walk into the gas station to pay for gas. I haven’t in years. I use the debit card at the pump. But at the pump, you’re not likely to impulse. There are some studies that show you’re more likely to spend more using your Shell card or your Exxon card than you would going across the street to the off-brand, though.

It’s not killing you. It’s not a deal breaker, but I don’t think you’re getting anywhere near the advantage that you’ve built it up to be in your mind. You’re working awfully hard to get a couple of hundred bucks here. I think at the end of the day if you went to a debit card, you probably wouldn’t notice the difference except you’d probably look up at the end of the year and realize you spent several thousand dollars less. That’s what the studies indicate, and it kind of rings true common sense in your heart. The problem is 100 million families did not pay off their debt last month. All of them thought to themselves when they took that card out that they would use it wisely, which is kind of oxymoronic in a sense.