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Credit Cards

Why You Shouldn’t Cut Up All Your Credit Cards



First of all, this isn’t a “bash Dave Ramsey” post. Rather, I greatly admire Dave Ramsey and his overall philosophy on personal finance.

I’m sure most of you have heard of Dave Ramsey (he seems to be everywhere these days), but for those of you who haven’t, Dave Ramsey is a popular financial guru –he has a radio show as well as a TV program on the Fox Business channel.

Dave teaches what he calls “The Baby Steps”. The Baby Steps comprise of 7 steps that Dave believes anyone can take to achieve wealth (or as he calls it, “financial peace”). Dave outlines these steps in great detail in his book, The Total Money Makeover.

Why Dave Ramsey Says To Cut Up All Your Credit Cards

My Total Money Makeover by Dave Ramsey

I first read his book about a year ago and I have been listening to his free podcast on iTunes for about 4 months. I definitely recommend this book, The Total Money Makeover to anyone who is just starting to get a handle on their personal finances.

The process Dave uses in The Total Money Makeover is to take the reader through a journey as though they are completing each baby step during the read. Before discussing the particulars of each step and the subsequent reward, Dave methodically strives to hammer one idea into the reader’s head: Your money problems are your fault and it’s only through self discipline in handling money matters that you can achieve financial peace.

Basically, he says that his steps will only work if you change your behavior in regards to money. I couldn’t agree more.

I am not going to review each one of Dave’s baby steps in this post (you can get them from his book), but I want to touch on the first two and express what I believe to be inconsistent (and potentially unhelpful) advice. I’d also like to open the discussion up so please comment or email me with your thoughts.

Dave’s first baby step is to save $1000 in an emergency fund –that is, money that should only be used if you find yourself in dire straits while you’re working on baby step 2.

Do You Need a Plastectomy?

As a prelude to outlining baby step 2, Dave suggests that you get intense and do something drastic: cut up all your credit cards (he calls this a “plastectomy”). He tells the reader to close all credit card accounts that are paid off and pay off any credit card account with a balance as quickly as possible and then close the account.

Baby step 2 says to pay off all your debt (except the house), smallest to largest. At this point, he is assuming the reader has sworn off credit completely –forever.

Why You Shouldn’t Cut Up Your Credit Cards

cutting up credit cards

This is where I find several inconsistencies. First of all, there is a big fat elephant in the room which Dave cannot avoid:

Closing All of Your Credit Cards is Going to Ruin Your Credit Score

I made this mistake when I started my credit repair journey.

Dave’s response to this is simple, but in reality, misleading and unhelpful to most people. Dave says that people ought not concern themselves with their credit score. After all, having sworn off credit himself, he doesn’t even have a FICO score.

Dave claims that if you use his baby steps you will become rich, and I believe him. However, it should also be noted that even he admits this process takes decades. Do you want to pay an extra $50 per month on your car insurance until you become rich because you don’t have a FICO score? I don’t. Your car insurance premium is only one out of dozens of problems that will arise in your life with a poor (or no) credit score.

Do you ever want to get a decent rate on a mortgage? This is debt that Dave permits, by the way, because even he realized that most people cannot simply save $150,000 or more. Nonetheless, there is no such thing as a mortgage lender who doesn’t at least look at your FICO score. I dare anyone to find one, honestly.

Do You Really Need to Cut Up Your Credit Cards?

Aside from the problem of ruining your credit score, the inconsistency really lies in the fact that prior to this, as we have discussed, Dave says that we need to become disciplined in money matters, yet at the same time he tells us that we lack the self-restraint to maintain an open credit card account without charging it off. The point is that anyone who lacks the ability to not use their credit card, more than likely also lacks the ability to save their $1000 emergency fund just for emergencies.

This all, of course, is a journey where we are supposed to acquire the skills to be successful with money, and this requires that we teach ourselves self-restraint rather than destroy the ability to be tempted.

Again, I wholeheartedly treasure Dave’s overall financial advice –it’s a real gem. However, I would kindly suggest that anyone who is starting with Dave’s Baby Steps, reconsider closing your credit card accounts. After all, with a little self-restraint taught by Dave Ramsey, it’s just as easy to put your cards in a dresser drawer and not use them.

Comments


  1. Dave doesn’t deny that not having a credit score can cause you some problems. He admits that you do pay more for some things and that in some cases it will keep you from say renting an apartment in some places. He could write a check to buy the building, but they wouldn’t rent to him because he doesn’t have a FICO score. He’s not denying the realities of not having a credit score. But I think the way he feels about it is that whatever extra you may pay for insurance or whatever is still less costly than staying in debt just to maintain your FICO score.

    And besides, cash talks. If I flash a bunch of green in front of you, my credit score doesn’t matter. You have that cold hard cash in your hand now, which can’t be beat in terms of guaranteed payment.

  2. I agree that cash talks in many situations, but that doesn’t necessarily apply (as far as I know), to car insurance and mortgages.. These are big expenses in folks lives and cannot be avoided in this discussion.

  3. Why not talk to your car insurance company? The mortgage lender I can’t help you with, but DH and I are determined to save up and pay cash for our first house. We’re going to work the extra jobs, etc that it will take – because we never want to borrow money ever again. I’m sure if I called up my insurance agent and explained to him the situation he would find a way to help me out. If he didn’t, I would find an insurance company that would help me out.

  4. I tend to agree with the author. Becca, I don’t think an insurance agent has the authority to adjust your premium rates because you explained that you no longer use credit. I have a pretty good credit score (around 700) and my insurance premium still went up a few months ago. They sent me a letter stating that they pulled my credit report. The fact of the matter is that the insurance companies are just following an industry wide trend and its only going to get worse. Don’t destroy your credit score just because it makes you feel fuzzy inside that you don’t need credit. You might not need credit, but you need a credit score nowadays, unless you’re rich and can “write a check to buy an apartment building”.

  5. “Can you afford to pay an extra $50 per month on your car insurance until you become rich because you don’t have a FICO score? I can’t.”

    If this is true, I cannot fathom why anyone would take your financial advice in any way. Dude, mow a lawn or two and you’re there.

  6. 1. If just enough people, and I am not saying all, but rather just enough took Dave Ramsey’s advice, there would be no economy. This faux system of ours is founded on debt and currency manipulation, NOT a true exchange of goods and services. This is a little tidbit that gets left out of the discussion of personal finance frequently. What does this say about the true state of things? It means that if enough people spent “within their means” as Dave suggests, it would translate into more people losing such a means altogether. Face it. When it comes down to the crux of things, there is a high likelihood that the fact that John and Jane Doe are neck deep in debt, or Uncle Sam for that matter means that you have a job to begin with. They quit spending, people lose jobs. People lose jobs, they cannot afford things and quit spending. The gig is a joke.

    2. I have listened to over one hundred of Dave’s podcasts over time and read his TMM book (and donated it once finished). I have also listened to and read Suze Orman and a host of other “financial advisors.” In retrospect, all in all I would say that not one of them offers anything more than moral support along with some particular schtick. Suze’s is girl-attitude “denied”. Dave’s is a churchy backwoods sort of thing. None of them offers any real solutions that a reasonably intelligent person cannot figure out themselves. If you want REAL advice, it takes a lot of research from a lot of different resources. I would recommend starting with blogs such as this one. And while you are at it- how our financial system started, by whom and its overall design and progression over the last 80 years or so.

  7. “staying in debt just to maintain your FICO score.”

    You don’t have to stay in debt to maintain a FICO score. Keep your major cards open, charge a coffee every few months and immediately pay it off. Simple.

  8. Dave Ramsey gives some good advice for those who have dug themselves in to a financial hole. It assumes the person has little financial sense. But for those who do have financial sense, following his advice would cost them quite a bit of money. Obviously with no fico score you’ll pay higher insurance premiums (car, property, life), as well as miss out on some opportunities. I would never consider living without a credit card. It is convenient and I enjoy getting the $$ back on things I needed to buy anyway. Dave’s rebuttal to the $$ back is that he’s never heard of a millionaire that got there by earning credit card points. Obviously that’s an asinine remark. While earning credit card points isn’t what made me a millionaire, it contributed to the tune of $20k or so to date. And I did not buy more stuff because I used a credit card.

    Dave has a lot of these little canned quips as rebuttals to certain statements. Another concerning credit cards is it’s not a safety factor to carry a credit card, that a mugger doesn’t have x-ray vision and can’t see if you’re carrying cash or a credit card. Another obvious BS statement of his. If a friend and I get mugged, and I’m carrying only a credit card and my friend is carrying cash, guess who loses? My friend has lost his cash. I have lost nothing. But Dave doesn’t go there because it doesn’t support his anti-credit card notion.

    Dave is a hypocrite. He advises one method is the ‘envelope’ approach – put the $$ for each spending category in an envelope at the beginning of the month. While he’s telling people to save every dime to put toward debt, he sells ‘envelope wallets’ on his website! So while he’s telling people to pinch every penny out of one side of his mouth, he’s selling them unnecessary stuff out of the other side. What a joke!

    I could go on and on about Dave Ramsey’s misguided notions, but I will stop here. He is not a financial guru, he’s a personal advisor to folks who have limited income and spending problems. That’s all he is, nothing more.

  9. Personally, I don’t know anything about Dave Ramsey.

    However 8 years ago I cut up all my credit cards, and have never looked back. Granted I did this right after I bought a house and while my car was relatively new, this also was 9 years after my bankruptcy.

    Another option that some people use is to put the cards in a safety deposit box in the bank. That sure will end spur of the moment purchases.

    The fact that the same insurance agent covered both my house and car negated the lack of credit cards, so that was not a problem for me. I just recently paid off the last of the old bills and totally have no debt except for the house and cars, I can not tell you the last time the mail did not come with some kind of offer from one credit card or another. During the first two years it was scary not having the cards “incase of emergency” but working one week of every month to pay credit card interest was never going to get me any ware.

  10. @ Chris

    I appreciate you for making that point!!! I charge no more than $4-$8 a month on my credit card for items that I would have to buy with cash anyway (ex. laundry detergent, toothpaste, etc.). I pay it off as soon as the charges post but before the statement cuts thus no finance charges.

  11. Ryan,

    If my auto insurance company raised my rates $50 a month for no other reason than my FICO score, I would be shopping around for a new insurance company. Depending on what state you live in it may be illegal for them to do that. Perhaps rather than believing that you should worry about your FICO score you should contact your state’s insurance commission and complain of such unscrupulous practices.

    1. I’m not aware of any laws against using a person’s FICO score to determine insurance rates. In fact, I think it’s become common practice… wish it wasn’t that way, but it is..

  12. You can in fact get a home loan without a credit score. FHA guidelines provide a method of alternative credit evaluation, ie proof of timely rent, utility payments, etc. No debt, a track record of timely payments, and a track record of increasing savings/retirement assets can in fact be more informative to an underwriter than a credit score (particularly a score with little or no installment history)

  13. As far as getting a Mortgage, having a good FICO does not guarantee you that your application will be accepted. All it does is make it easy for a clerk to input your info into a computer and the computer decides.

    Manual underwriting may cost 2-3X the standard mortgage app fee, but you are dealing with an underwriter, not a clerk, and they will take into account things like payment history for utilities, rent, (considered more important than cc debt history)bank balances, amount of down payment, etc. Your FICO will be analyzed but it is not the sole deciding factor. Often times you will get a better interest rate with manual underwriting and an avg to good FICO than if you take the easy approval route.

  14. “You’re honestly telling me to mow a lawn? Where on earth do you live? In what century?”

    Er, I live somewhere where there are lawns, in a century where people still need their grass cut, and I’m not afraid of 20 minutes of sweat.

    I mean, I didn’t suggest you raise the money by setting up your carriage repair business. 😀

    But my POINT was: $50 is not something you “can’t afford” – that’s just drama and you and everyone reading this who’s not living at the poverty level knows it. You may not WANT to pay $50.00 extra per month, and that’s your call, but don’t say silly things like people in 2009 “can’t afford” $50.

    As someone else has already pointed out, some states already protect consumers from jacked-up insurance rates due to low FICO.

    As I’ll further point out, refusing to deal with credit card companies shenanigans protects ME from hidden fees, from interest rate hikes, from cancellation of my accounts because I don’t use them enough, from temptation to carry a balance “just this once”, etc.

    Looking at Dave Ramsey’s track record in consumer protection and looking at my own experiences in voluntarily living without credit cards, I’ll continue on in my quaint ways of paying cash for everything, living on less than I make, and saving up for what I want.

    I can’t stop people playing the FICO game if they want to, but I can speak out against scare tactics designed to make people believe they have no choice.

  15. I agree that if $50 is going to ruin or break your budget, you have bigger problems than your insurance bill. Financial peace means living far enough away from the financial edge that a $50 difference in rate or a spike in gas prices is a barely noticeable blip on the radar and a $1K+ car repair is a bump in the road instead of a crisis.

  16. I charge thousands of dollars per month on credit cards yet somehow manage to not pay any CC interest? How is that possible? Is it possible that I am not as stupid as Dave asserts that I am?

  17. Why not keep a credit card open and NOT pay extra for house and auto insurance? What’s wrong with you people? Have you no self control?

  18. By athensguy

    I charge thousands of dollars per month on credit cards yet somehow manage to not pay any CC interest? How is that possible? Is it possible that I am not as stupid as Dave asserts that I am?

    No, it just means that you are of the few who have the discipline to pay off the balance at the end of the billing cycle.

    Just understand that by doing this you are accepting the risk that the CC can change the terms when they wish.

    I expect that the credit card companies will start charging new accounts interest from the moment of purchase.

  19. “By Chris on Dec 3, 2009 | Reply

    Why not keep a credit card open and NOT pay extra for house and auto insurance? What’s wrong with you people? Have you no self control?”

    Actually the majority of Americans, do not have self control in any aspect of their lives.

    The first step in learning self-control is to acknowledge that you don’t have any.

    What’s wrong with lobbying your state to outlaw the unscrupulous practice of using FICO to set insurance rates?

  20. Shelly doesn’t have any self-control. That’s fine…you don’t have to have credit cards.

    EVERYONE is checking credit these days. To open bank accounts, start utility service and cell phones, and to price your insurance.

    There’s nothing wrong with using your credit rating to set your insurance rate…it’s a testament of how responsible you are.

    And I agree, I’d rather keep the extra 50 dollars a month. Why pay extra when you don’t have to? Have a Visa or MC and put it away…freeze it in a block of ice…I don’t care. Use it every once in a while, and pay as soon as you get home. When you have decent credit, you pay no annual fee, and no fees when you pay if off quickly.

    *You don’t have to pay $$ to have a good FICO, but you sure pay if you don’t*

  21. @Shelly:
    “No, it just means that you are of the few who have the discipline to pay off the balance at the end of the billing cycle. ”

    If you can’t budget, it doesn’t matter what gimmicky system you try. If you can budget, it’s not significantly more work to PIF CCs.

    “Just understand that by doing this you are accepting the risk that the CC can change the terms when they wish.”

    So? If they offend me enough I’ll close that card. PIF means I’m not at their mercy.

    “I expect that the credit card companies will start charging new accounts interest from the moment of purchase.”

    It is unlikely that grace periods will be eliminated.

    “Actually the majority of Americans, do not have self control in any aspect of their lives.”

    Then there is nothing you can do to help them. Fortunately, it’s ignorance rather than self control that is the problem. Ignorance can be rectified, but not by teaching more ignorance like Dave does.

    “The first step in learning self-control is to acknowledge that you don’t have any.”

    I acknowledge no such tripe.

    “What’s wrong with lobbying your state to outlaw the unscrupulous practice of using FICO to set insurance rates?”

    I agree that insurance rates should not be based on credit. They’re not based on FICO, however. They’re based on insurance scores derived from your credit report. It’s unlikely for a Republican state such as the one I live in to outlaw such consumer unfriendly practices if they are profitable.

  22. You don’t have to dare people to find a mortgage company that will give you a mortgage without a FICO score. The answer is to NOT apply online, but to find an actual HUMAN underwriter. Banks will make a mortgage loan to people who have no debt, a solid work history, a large down payment, and are asking for a 15 year mortgage. No FICO required.

  23. Actually I have self-control and discipline. I have no debt, I own my house out right – yes no mortgage; and DH and I have over $500k in retirement accounts. And we have low insurance rates due to excellent history with our insurance company on both auto and home owner’s. No car payments, we own 4 vehicles all paid in cash.

    All a credit card does for you is to allow you to pay for something right now instead of waiting for it.

    And for the record we do have 2 credit cards that are paid off every month for gas purchases, and online purchases.

    So sweety, perhaps you should re-think your paradigm. Credit cards aren’t for everyone.

    And FICO is unnecessary. That line about it’s a testament of responsibility is pure BS sold by the insurance industry and banking industry. And they’ve proven how reliable and trustworthy they are haven’t they?

    Payment history has no bearing on whether or not you are a good driver.

    I save more than that measly $50 a month by being disciplined and exercising self-control, than worrying about whether or not my FICO is perfect.

  24. @Shelly
    Unfortunately, our widening division between the rich and the poor means that fewer and fewer Americans will have the opportunity to become millionaires such as yourself.

    However, judicious use of credit cards can add a little to the bottom line (currently tax free) and help you get along.

    “All a credit card does for you is to allow you to pay for something right now instead of waiting for it.”
    I could pay for the things I buy with some other method, but why would I when my CCs provide so many advantages? 2% or more cash back, float time, purchase protection, loss protection, and I’m not risking my own money carrying it around.

  25. athensguy “Unfortunately, our widening division between the rich and the poor means that fewer and fewer Americans will have the opportunity to become millionaires such as yourself.”

    I’m sorry I refuse to believe that. They’ve been saying that for years and over the decades the the % of “wealthy” continues to rise. The opportunities are there, but again, if you don’t have discipline and self-control to grab them you won’t get ahead.

    “However, judicious use of credit cards can add a little to the bottom line (currently tax free) and help you get along.”

    That is little better than taking out payday loans. BTDT I learned the hard way. Plus if you don’t have the discipline to use those cards judiciously (which BTW is self control) then you get into trouble every time.

    “I could pay for the things I buy with some other method, but why would I when my CCs provide so many advantages? 2% or more cash back, float time, purchase protection, loss protection, and I’m not risking my own money carrying it around.”

    I play that game too – but again it take the discipline to make a budget, and the self-control to not overspend using those CC’s. And don’t kid yourself about risking your own money. The reality is that unless you live in a high crime neighborhood you aren’t likely to be mugged & robbed.

    Plus use some common sense – only carry a large amount of money when going to make a big purchase like a 47″ flat screen.

  26. athenguy-
    “The first step in learning self-control is to acknowledge that you don’t have any.”

    I acknowledge no such tripe.-

    It’s not tripe. We aren’t born with self-control, it is a learned discipline. If you haven’t been taught or learned it, it you don’t have it.

  27. So that’s Shelly’s problem. A victim of payday loans (ha!) and therefore bad credit. No wonder she’s so bitter.

    A question…supposedly Shelly’s so wealthy and responsible, and she took out PAYDAY LOANS? I say again, PAYDAY LOANS? Who does that, expect the stupid and/or extremely poor? No wonder her logic is so flawed.

    Even credit cards (those evil things!) would have been a better choice.

    Or how about this…spend within your means, Shelly!

    Thanks for the laughs.

  28. “That is little better than taking out payday loans. BTDT I learned the hard way. Plus if you don’t have the discipline to use those cards judiciously (which BTW is self control) then you get into trouble every time.”

    I’m sorry, but if you equate a negative interest short term float with a high interest payday loan, then I need to quit trying to talk with you because you have some serious cognitive difficulties. You have also apparently avoided seeing the significant increases in poverty in the United States.

  29. Honey child, It’s been over 20 years since I was in that mess. And you need to check your reading comprehension (HS drop out?). It wasn’t payday loans, it was using the credit cards that got us into trouble. That was the BTDT that using credit cards to stretch the bottom line. So IMO using CC like that is like getting a payday loan.

    So after hitting rock bottom and being denied WIC and food stamps after getting laid off, we used CC to get by and had to declare BK.

    I know how to live within my means – I learned how to make a $25 a week grocery budget buy healthy meals.

    So I learned from my mistakes of 20 years ago and learned self-control. We made savings a priority, we avoided debt and when we have had debt, we have paid it off early since then.

  30. Negative interest? 20 years ago there were no cash-back rewards and what not and the avg CC rate was 15% However it is not the math but the behaviour that is the problem.

    I have watched people live beyond their means, but those people living in actual poverty is about the same.

    You want to see real poverty, go outside the US, because even our poorest live better than most of the world.

  31. “Negative interest? 20 years ago there were no cash-back rewards and what not and the avg CC rate was 15% However it is not the math but the behaviour that is the problem.”
    It doesn’t really matter what it was 20 years ago. If I PIF but get rewards, that is negative interest (they pay me to take the float). If that changes in the future, then I will adjust my behaviour to compensate.

    “You want to see real poverty, go outside the US, because even our poorest live better than most of the world.”
    Sure, if you want to compare us to developing countries. However, I would rather compare us with other developed countries since we have been considered a developed country, and our poor are much worse off than the poor in many of those countries.

    Anyway, back to the argument at hand:
    If you can budget, you can use and benefit from CCs. If you can’t budget you should learn. DR is not going to teach you how to do that. Your credit fairly and unfairly affects what you may pay for many items and services. Until you can change the unfair items, it certainly doesn’t hurt to have good credit. It doesn’t cost money to have good credit.

  32. Actually the cornerstone of Dave Ramsey is learning how to budget and sticking to it. You have to do that before you can save up the baby emergency fund and then start paying off debt. He is emphatic about living on a budget regardless of income or debt. Unfortunately he seems most known for his anti-CC stance rather than the sound financial principles he teaches.

  33. Tsk tsk… I can’t believe some of the comments on here.

    Dave is very forthright; his method is about changing behavior.

    Regarding the $50 car insurance increase, it’s called STUPID TAX and it’s what you pay as a penalty for your previously DUMB behavior. After all, if you were such a freakin’ financial genius, you wouldn’t have gotten yourself into such a mess in the first place!

    Sheesh… it’s not difficult to understand, people!

  34. “Unfortunately he seems most known for his anti-CC stance rather than the sound financial principles he teaches.”

    When most of your advice is generic and nothing special, the bad advice is what tends to stand out.

  35. @Congress Works For Us

    I’m not sure you read the article. I agree, nonetheless, that paying an extra $50 per month on car insurance for no good reason could be called stupid tax.

  36. @Ryan – I read the article. However I’m not sure you read my response. It’s about behavior. People who get themselves in a big financial mess in the first place WILL be tempted by credit cards accounts that are still open… That $50 a month (btw, with 3 fully covered cars my agent said a 250 point drop in my FICO score would cost me less than $200 a year, so not quite sure where you’re coming up with $50 / month) is much less than what they’ll end up paying with interest and penalties when they rack up the debt again…

  37. Here is what Dave points out in his tried and true method of living like no one else so later you can live like no one else.

    A FICO score is a measure of how you handle credit (debt). So you have to owe people money, often times at outrageous interest rates, in order to have a good FICO score.

    Living debt free and not worrying about your FICO score is a measure of how you handle your money and make it work for you, rather than it telling you where it needs to go, ie: all those debts to have that precious FICO score.

    There are companies that will do manual underwriting for mortgages, insurances, etc. You just need to ask.

  38. @nocreditcards

    “A FICO score is a measure of how you handle credit (debt)” — credit and debt are two different things — they are opposites actually.. remember, you can have credit without debt.

    “There are companies that will do manual underwriting for mortgages, insurances, etc. You just need to ask.”

    Kindly name one and I’ll call them today.

  39. Dave Ramsey presents one avenue for folks to apply common sense to their financial management. Nothing more, nothing less. There are other ways to get there (ie. there’s more than one way to skin a cat). Where credit cards are concerned, there have been studies done that show people tend to spend 16-18% more when using plastic vs. cash (Dunn Bradstreet did a study in 2007 I believe as a reference). (just as an experiment, spend cash only for 3 months and compare that to spending habits a year ago….it’s much harder to plonk down that wad of $20’s for that new widget than it is when using plastic). So the problem is that the AVERAGE person tends to spend more and gets into trouble. Currently the average credit card debt that a household has is over $10k and that’s up from year’s previous. It’s clear there is a portion of our population that cannot manage credit cards effectively and Dave knows this. Actually, the number of people that either don’t have a card or pay in full is about 55% of the population (about 30% pay in full) (Federal Reserve, 2004). So for those of you that are able to pay in full and get the perks, the other other 45% that don’t is where the credit card companies are making their $$ (billions a year by the way). I would be willing to bet that if you asked the question “Are you a responsible user of credit cards” you’d see more than 30% or so respond “Yes”….this is effectively what Dave is trying to target is the denial that people are in. Are you spending 16-18% more per month that could be going towards that mortgage or retirement but still think you are a responsible CC user? Only you can answer that question but the odds are that you aren’t. At the end of the day, Dave is simply trying point out that managing money is more than just math and it’s really about the behaviors (as he says “Personal Finance” is 80% personal and 20% finance). For those that pay in full every month, can honestly say they don’t spend more using plastic vs. cash, and have all their ducks in a row when it comes to retirement, etc….don’t waste your time with any personal finance counselor….but for the majority that cannot say this, it’s probably worth listening to. As for FICO scores, many report that when they get debt free and close the CC accounts, their scores actually have gone UP. I can’t attest to this as I’m not in that situation but it does happen. There are other measures of one’s credit worthiness out there that many of the insurance companies, etc… use besides FICO. Personally, I’m in the space of reducing my cc accounts (number of cards) which I have and using the ones I do have only sparingly to “buy that cup of coffee” just in case I should need a FICO score down the road.

  40. A FICO score is a measure of how you handle credit (debt). So you have to owe people money, often times at outrageous interest rates, in order to have a good FICO score.

    You don’t have to pay any interest to have a good FICO score.

    Living debt free and not worrying about your FICO score is a measure of how you handle your money and make it work for you, rather than it telling you where it needs to go, ie: all those debts to have that precious FICO score.

    I’m not debt free (mortgage), but my FICO score is a measure of how I handle my money. I do it very well.

    There are companies that will do manual underwriting for mortgages, insurances, etc. You just need to ask.

    Ah, loan sharks.

  41. Having a good FICO score can be FREE. I have a GREAT score and I pay NOTHING for it. I have no annual-fee credit cards and I pay the same week I charge something. FREE!

    @Congressworksforus “Regarding the $50 car insurance increase, it’s called STUPID TAX and it’s what you pay as a penalty for your previously DUMB behavior. After all, if you were such a freakin’ financial genius, you wouldn’t have gotten yourself into such a mess in the first place!”

    I don’t think you understand what they were discussing. It’s paying an extra $50 a month because you have NO CREDIT, as opposed to having bad credit. You Dave Ramsey nerds are paying higher rates because you don’t care about your credit score. Low credit score (because you are not a user of credit) = HIGHER INSURANCE RATES.

    Like I said, it’s FREE to have a good credit score. So why not? Not all of us have self-control issues.

  42. Check your info on insurance rates. No state insurance departments that I’m aware of allow a company to put you in a lower tier (higher rates) for insurance coverage on your FICO score alone. You have to have other issues that are underwriting concerns such as age/experience/violations etc. Additionally most insurance companies don’t look at the FICO score at all. They pull a credit report so they can see your activity.

    You’d have to be dropped into a pretty low tier to get an additional $50/month increase.

    Just alarmist rhetoric to justify continuing to use debt.

    You want to use it, go ahead……but make up scary stories to justify it. Insurance companies are heavily regulated and if you think that your company is using your FICO score alone, to increase your rates….contact your State insurance department and they’ll take care of that for you.

  43. Another point that many have not put on here yet is that many credit card companies are looking to add fees and interest to people who do pay their bills off every month, because they are realizing they make no money off of you. So unless you plan on finding the few that won’t very quickly follow suit, most of you who are saying to keep these cards open will pay more than that $50 to the credit card company to get the “privilege” of being a card holder. And as many others have said, insurance is becoming a more competitive field. They want your business and if you say you’re going to switch companies because they are charging you more for not being in debt and having a credit score, and a lot of them will try to work with you. And those that won’t, well they will learn that this tactic may cost them more business in the future as well. Me and my family will continue to not use debt, and in our 20’s, will use this decades long practice to make ourselves rich, and our kids will look at a $50 car insurance hike and laugh at it.

  44. What you Dave Ramsey nerds are forgetting is that CREDIT DOES NOT EQUAL DEBT!

    When I use my no AF credit cards and pay them off immediately there are NO fees – and companies are not adding fees for that type of spending. They are hiking interest rates (which I don’t have to pay) and fees for late payments and over the limit spending. Again, smart credit card use costs nothing.

    And mephisto, why would a rich person laugh at paying higher rates? They wouldn’t, unless they are also stupid. You don’t get or stay rich blowing money for no reason.

    Having a good FICO score costs nothing.

    I laugh at you who DR has brainwashed. He’s made so much money off of you fools — he’s laughing all the way to the bank.

  45. @Mephisto
    Every company is always looking at new ways to try to make money. Just because CCCs are looking at adding fees or eliminating grace periods does not mean that will happen across the board. Some cards may have an annual fee added. Fewer may eliminate grace periods. You see, it’s not true that card companies don’t make money from PIF cardholders. Before American Express went subprime, all of its cardholders were PIF unless they were in default.

    Anyway, I have 8 or so cards in my name and DW has a few others. All are no annual fee and all have grace periods. I find it very unlikely that any of them will eliminate the grace period or add an annual fee, with the addition of an annual fee being slightly higher than the elimination of the grace period.

  46. It is a good thing to have a bunch of credit cards with slight movements on them – spend some, refund some, making up as good history without really taking large credits – like you are spending your cash with slight percentage that is improving your overall credit score. And I definitely agree that to close all your cards is a bad idea. No credit – no score. No score = problems. Linked back to this article at http://procreditscoretips.com/2010/09/why-you-shouldnt-cut-up-all-your-credit-cards/

  47. I keep a Discover Card and a Mastercard. I use the Mastercard frequently to buy gas, and other items that would require a hundred or two hundred bucks. That’s a lot of money to carry around. The Mastercard rebates 1% (so I collect a portion of somebody elses interest), but it is important to note that I pay off the Mastercard as soon as the charge goes through. That’s usually 48 hours. I never charge unless the money is in my account to pay off the charge. Electronic banking allows you to pay off your credit card every single day if that is what you want to do… and just happens to be what I do! This whole topic is about discipline! You either have it, or you need to find it… The Discover Card only gets used twice a year to buy a couple of low priced items, otherwise, they send me letters threatening to close the account.

  48. It is very possible to get a good rate on a mortgage without a FICO score but it requires finding someone who will actually look at your credit report to see that your zero FICO score isn’t due to irresponsibility.

  49. I haven’t had a credit card after I ruined my credit as a young guy. Not having a credit card for the longest time made really hard for me. I had to get friends and family to grab things for me when I want to purchase something online – book flight, plane tickets and etc. But I recently applied for one through Capital One and I have been approved and I’m very excited about it. Sure as an adult I am now more responsible with it but I know realize the importance of having credit card when cash just doesn’t do.

  50. I read this last night and I just could not help but post something when I kept seeing posts where people are actually agreeing with Dave Ramsey that no credit cards is a good idea.

    I see it this way – I save money when I use my credit cards, in the tune of $100 a month if actually cash back. (5% from restaurants, Lowes, Target…6% back from groceries, 4% back for gas, 3% back for department stores, and 1% back for everything else). This all equates to me saving just under $100 per month. If I put this into a retirement savings starting at age 21 and retired at 70, I’d have $869, 204. This only includes the actual savings you receive from using the credit itself. What about the notion of receiving lessor interest rates and monthly insurance permiums? If you ONLY include what $50 for insurance mentioned in this blog, then you’d have nearly 1.3 million dollars.

    So while I see these foolish excuses like “I can afford $50” or “credit doesn’t matter” or “I’ve never heard anyone get rich from credit rewards”…I can’t help but see the ignorance and stupidity in those statements. I’m sorry, but Dave Ramsey’s advice to throw away 1.3 million dollars is not good advice, no matter how you try to act like it is. Your ability to budget and spend accordingly is different from good and sound financial advice. Dave Ramsey is not right here…it’s not even a contest.

  51. I like the idea of no credit cards . Really if you can’t afford it don’t buy it.
    When a house cost 200k and you don’t have 200k and anyone bidding on the house doesn’t have 200k it could mean the house simply cost too much. I reality you or the other bidder isn’t going to own that home the real owner will be the bank providing the loan which after the smoke clears will probably be the same bank. You may think your a homeowner but miss a few payments and you’ll realize quick you didn’t own anything . In fact most people think they own their car until they miss a few payments. Welcome to fascism. .. anyways if you made 30 years of payments on time and never get sick and have to goto hospital for a month or so or never lose a job you may own it after 30 years but think to yourself in 30 years from now do you need a home or a nursing home ? Will you enjoy this home in your 70s ?

  52. I so agree with this. I am going through Financial Peace University, and I actually asked that question last night in my group. I am in my second month of the class. I paid off both of my credit cards, and will have a $1000 in my savings this month. However, what if you need to book a plane ticket, rent a car, or if you have travel /business related work expenses that you have to pay upfront, then are reimbursed. As a model, I sometimes have to book hotel and travel to events that I make $1000-1500.00. I also am trying to refinance my car, and I need a good credit score to get a lower interest rate. I also want to buy a house. I have been to 20 different banks, they ALL said that I need a 640 for them to approve me. So I don’t agree with cutting up cards unless you don’t ever travel, or are already situated in your permanent home.

  53. My husband takes everything that comes out of Dave ramsey’s mouth as gospel, and while I do agree with most of what he says, his touting a zero FICO score is irresponsible and stupid. We paid off all of our debts including the house 7 years ago. My husband has a zero FICO score is all proud of himself, well guess what? We want to purchase land adjoining our property and his zero FICO score is screwing with our ability to get even a home equity loan. We have 3 VERY small medical bills that went to collections (totaling less than 300.00) and our bank turned us down for the home equity loan because of those accounts. We are attempting to get an FHA refinance with the same bank (where we have banked for 25 years) and I have to get these medical things off his credit report and round up all the old utility bills, etc that were paid on time. All of this could have been avoided if my husband had left ONE damn credit card open and charged gas on it once a month. I am about ready to call Dave myself and ask him to give me the damn loan since his advice screwed us over.

    1. If your husband was truly a die-hard follower of Dave Ramsey, why did he overlook 3 small medical bills to the point of going to collections? I’m assuming he most likely did not save 3 to 6 months living expenses and didn’t consider a sinking fund to purchase the land you’re talking about? Something doesn’t make sense here.

  54. I am on week 2 of the class and had this exact question. I had to file bankrupt 4 years ago due to an outrageous amount of medical bills. I hadn’t used credit cards for 20 years until my bankruptcy and only now to help raise my credit score. Very hesitant to cancel ????

    Even with his program, you are still allowed to use debit cards so I am unsure as to why people are having issues with shopping online and booking plane tuckets/hotels.

  55. I agree to this post. You are a responsible adult if you are really serious about being debt free Therefore, you are capable of keeping your credit cards and not go back into debt. Closing them out WILL hurt your credit score. Keeping them open and being responsible with them will not only better your credit score, it will also give you cash rewards every month. Over the years I’ve accumulated several credit cards but since 2012 I NEVER carried balance on any of them month to month. All of my credit cards(except 1) are put away and never seen but they pay off 1 or 2 of my utilities(just so I can keep them open) and I have my credit cards automatically paided in full 1st of every month. That way I have all my bills/utilities etc.. paid in the first week of each month. That leaves managing budget for the remainder of the month easier. The one I keep with me is used ONLY for Gas and receive 5% cash back. So if you have several credit cards like me, keep them out of your sight but open by having a utility bill paid off automatically every month and set a monthly automatic payment of FULL BALANCE of the credit card. You will not hurt your score, and never miss a payment on anything. All you’ll have to do is make sure you have enough money for each month in your checking account. My goal is to hit $0 in my checking at the end of every month.

  56. Well done! DO NOT cancel credit cards! The basic FLAW in the Dave Ramsey method is the belief that you do not need a FICO score. You need a FICO score just to rent an apartment here in California, and need one to buy a house (a debt he grudgingly approves of). Some prospective employers will also run credit checks. So a good FICO score is essential.

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