Diverging Perspectives on Credit Card Points: A Debate with Dave Ramsey
Credit card debt for American consumers hit a record high of $1.13 trillion in the last quarter of 2023, according to the Federal Reserve Bank of New York. As Americans grapple with this debt, there’s ongoing debate about the use of credit cards for rewards. Some personal finance experts are against credit cards, while others argue that responsible use can help build credit and earn rewards.
Popular financial advisor Dave Ramsey is not a fan of credit card points and rewards. He believes that accumulating points can lead to increased spending, as people might buy more to earn those points. He also points out that points can expire or come with terms and conditions that make them hard to redeem.
However, other experts disagree with Ramsey. They believe credit card points can be beneficial if used responsibly.
**Responsible Credit Card Use**
While it’s true that people prone to impulse spending should be cautious with credit cards, using them responsibly can improve your credit score. This, in turn, can help you secure lower interest rates on loans, such as a mortgage. Gauri Manglik, CEO and co-founder of Instrumentl, advises avoiding overspending just to earn points. She recommends paying off your balance in full each month to avoid interest charges, which can negate any rewards earned. With this discipline, points can accumulate quickly from everyday purchases.
Earning credit card rewards doesn’t necessarily lead to irresponsible behavior. You can still be a responsible user while collecting points. Danielle Desir Corbett, a personal finance expert at The Thought Card, suggests treating your credit card like a debit card. Instead of making one monthly payment, pay off your balance as you go, preferably daily, just like you would with a debit card.
**Turning Expenses into Rewards**
Experts note that you can earn credit card points from expenses you would pay for anyway, so you might as well earn some rewards to stretch your budget further. Manglik shares that she puts all her household expenses on a 2% cash-back card and earned over $600 in rewards last year, which she redeemed for gift cards. That’s $600 of free money she wouldn’t have gotten without using her points card.
**Spending Money Wisely**
Using a rewards credit card for purchases you were already planning to make can be beneficial. While Ramsey argues that the lure of points can lead to increased spending, the reality is that you’re missing out on perks if you don’t use a rewards card. Josh Bandura, co-founder of Frugal Flyer, emphasizes that the key to getting value from credit card points is not to spend more than you typically would, but to use the card as you normally would.
**Cutting Travel Costs**
For frequent travelers, using a travel rewards credit card to accumulate points can save money on future trips. The right travel rewards card can earn you points that lead to free flights or accommodations. Bandura notes that credit card points are worth collecting as they can significantly cut travel costs when redeemed for flights, hotels, and rental cars. Financial institutions often offer large amounts of points through welcome offers, making it advantageous to take advantage of these points, especially for those who travel at least once a year.