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Financial guru Dave Ramsey has long had some strong opinions about consumer debt. In short: He's really opposed to it.
Ramsey thinks that taking on debt means buying something you can't afford and getting stuck paying interest. And to be fair, he's correct about the latter. Most of the time, financing a purchase means racking up interest to some degree (unless you qualify for a 0% financing offer and manage to pay off your debt before interest starts to accrue).
Granted, there are some purchases it really is okay to finance -- like a home or a car. Most of us don't have the money to buy a home outright, and even a vehicle can be tough to pay for in full.
Ramsey doesn't love mortgages or auto loans -- but he really can't stand credit cards. And if he had it his way, consumers wouldn't use them. But is never using a credit card really such good advice? Here's why it may not be.
The downside of not using credit cards
It's true that credit cards can lead to costly debt -- but it's all about how you use and manage them. If you charge expenses on a credit card that you pay off in full every month, you won't fall into the debt trap so many consumers land in, and you won't end up having to spend extra money on interest.
In fact, using a credit card could actually benefit you in several ways. First, most credit cards offer cash back or rewards for the purchases you make. That's free money.
Secondly, credit cards can help you build credit. If you pay off your balance in full every month and make your payments on time, that positive activity will go on your credit report, potentially leading to a higher credit score. And a higher credit score could be your ticket to borrowing money affordably when you need to, such as when you're ready to buy a home or finance a car.
In fact, not using a credit card could actually backfire on you in that without that payment history, you may have trouble establishing a credit score for yourself. And if you don't have a credit score, you may have a similar experience to consumers with poor credit in that you may struggle to get a loan.
It's okay to go rogue
Dave Ramsey has a lot of solid financial advice to offer. But never using credit cards may not be a reasonable thing for most consumers. And if you don't already have an established credit history, following that tip could actually hurt your finances rather than help them.
Say you're ready to stop renting and want to buy a home -- a move that could lead to more financial security. If you don't have a credit score, you may not be able to get a mortgage. But using credit cards could actually be your ticket to getting that score established.
Plus, the cash back you get from your credit cards could make it easier to keep up with bills or pad your savings. So if you take the right approach to your credit cards, they could easily end up helping your finances improve.
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