Depends on the deal
As a general rule, I’m with the Wiz on not assuming debt for day to day expenses, namely credit card debt. But I think he’s way off base in targeting the pay it off every month crowd. Credit cards are convenient for tracking costs, but so is a debit card.
Also, I think he’s off on the points/rewards issue. Of course, it depends on the card and the reward system. I personally use the Amazon credit card. I get 1% back on all purchases and 3% back on all Amazon.com purchases. I also use Amazon Prime so my shipping is free. I also use their subscribe service and frequently purchased items are sent to my house on a schedule. So, I never have to go to the store to buy deodorant. It just shows up when I need it, I get rewards for it, and I defer paying sales taxes on it. Additionally, my money draws interest for an additional 30 days while it sits in my account. There’s no interest on my credit card so long as I pay it off. And that is a good deal.
It’s rather like a few years back when we bought my wife an SUV. You see, I didn’t really want a car payment and would have preferred buying the vehicle outright. But the interest rate on the dealer financing was less than I would draw on my savings account. So, I financed it. After the economy tanking, you don’t see those deals anymore.
I respect the Dave Ramsey school of thought on managing money. But one thing that’s lost on the Ramsey acolytes is that, generally, you can’t make much money by saving money.
October 24th, 2011 at 9:11 am
You defer paying sales tax on it for now.
Leave it to politicians to ruin the internet…which oddly seems to be par for the course here in Tennessee.
http://www.seattlepi.com/news/article/Amazon-to-collect-TN-sales-tax-add-centers-jobs-2205696.php
October 24th, 2011 at 9:13 am
Well…at least we have until 2014 to find an out-of-state vendor.
October 24th, 2011 at 9:21 am
His number 1 is totally wrong. Credit cards fall under the Fair Credit Billing Act. Debit cards fall under the Electronic Fund Transfer Act. The protections are not the same although some debit providers offer similar protections to encourage debit use. In my experience it is much easier to dispute and refuse payment with credit than it is to dispute and get all your money back with debit.
October 24th, 2011 at 9:27 am
…one thing that’s lost on the Ramsey acolytes is that, generally, you can’t make much money by saving money.
You don’t make money borrowing money either.
October 24th, 2011 at 9:37 am
I posted the same about his #1 on his site. Well not the legal aspect but my personal experience. When my debit number is stolen I am out a couple of thousand dollars for a few weeks then I eventually get it back. I still have to come up with the money in the meantime. When my credit card is stolen I call up Amex and they wipe out the charge and send me a new card.
October 24th, 2011 at 9:43 am
@SPQR it depends on what you do with the borrowed money…
October 24th, 2011 at 10:11 am
“Additionally, my money draws interest for an additional 30 days while it sits in my account.”
I’ve heard people say this a lot, but none of them are ever parking that money in an interest bearing account prior to paying the monthly bill.
October 24th, 2011 at 10:18 am
My checking pays interest.
October 24th, 2011 at 11:25 am
@Jeff: It depends on how you run the card. You’re correct if you have them run it as a debit card, but not if you have them run it as a credit card. It’s been years since I’ve seen a debit card that wasn’t a Visa check card or the like. If you have a debit card, run it as credit, and you get all the protections of a credit card.
October 24th, 2011 at 11:39 am
You can’t make much money saving money, indeed.
What you CAN do by saving money is avoid killing, crushing, opportunity-destroying debt.
October 24th, 2011 at 11:40 am
Oddball both times my debit was stolen it was stolen as a credit card. Both times I received all my money back, the point was it took the bank 2-3 weeks to give me the money back. For me it wasn’t an issue as I had a savings account to cover my bills. Most Americans don’t have savings and losing their rent plus bill money to theft on their “check card” would create a serious hardship for them.
October 24th, 2011 at 11:43 am
In my experience it’s a hell of a lot harder to get your money back when your debit card is compromised. When it happened with my credit card all it took was a phonecall and my accounts didn’t get drained dry.
I no longer have a debit card for exactly that reason.
October 24th, 2011 at 11:45 am
RE: Your decision to finance car instead of buying it outright. Did you figure the cost of having required collision insurance over the finance period in you calculations?
October 24th, 2011 at 11:48 am
I would have had it anyway on new car.
October 24th, 2011 at 12:14 pm
A few months back we ordered pizza on line and forgot to do the auto pay, when they were delivered I didn’t have enough cash on hand to pay, so I gave my debit card to the delivery person who called it in. Big mistake! By the following day we had almost $500 in charges that were not ours. Immediately called BOA and they were able to cancel our debit card, reissue a new one and debited our account (within 48 hours) for all of the bogus charges.
Using a credit card is probably safer but we had no problems with the way we were treated regarding our problem with our debit card.
October 24th, 2011 at 1:36 pm
Jeffrey H said:
I replied at wizardpc’s blog (as part of a longer comment), but I’ll repeat it here: You missed the part about establishing the emergency fund before getting rid of the credit cards.
If your debit card gets compromised, you dip into the emergency fund, because you’ve had an emergency.
You should also keep your bill money and your daily-expenses money in separate accounts. Not only does it help insulate your bill money from credit/debit card theft, it also helps keep you from spending bill money on anything other than bills
by mistakethrough carelessness.October 24th, 2011 at 1:58 pm
Uncle: how did you get an interest-bearing checking account?
Inquiring minds want to know.
October 24th, 2011 at 2:07 pm
From a local bank. They are out there, just look around.
October 24th, 2011 at 4:29 pm
@SPQR I once got a credit card that offered zero percent interest for six months. It had a $10,000 balance. I used that card in the fall of 2008 to buy 15 ounces of gold at $645 an ounce, a total of about $9,900. I sold that gold 5 months later for $15,900, paid the credit card off and pocketed a neat $6,000 profit.
It is called leveraging, and that is exactly how the big boys make money- by using other people’s money to work for them. Borrowing money and investing it is how profits are made.
October 25th, 2011 at 2:52 am
divemedic – that’s also why we’re in the housing mess. You got lucky, I wouldn’t try that again. And you’re totally wrong about how profits are made.
Profit is made from REVENUE- there can be no profit if there is no revenue. How the big boys make money is due to government protectionist policies, cronyism, and contracts.
Uncle, typically the price is reduced if you don’t take the “special” financing offer, i.e. $1,000 off or 0%APR for 3 years.
Rich people don’t have debt. Why do you think credit cards exist? To make YOU money or to make the issuing companies money?
I think your being too literal with Ramsey’s philosophy, saving doesn’t mean park it in a savings account, it means having a balanced portfolio. Though I do put non-daily (flights, tickets, electronics) purchases on credit because disputes are better protected. Having a debit card compromised could really be painful.
October 27th, 2011 at 8:19 am
@HardC0rps: “Rich people don’t have debt.” That’s the generally accepted wisdom, especially from Ramsey. However, having worked many moons ago as a credit investigator for a large bank, I can assure you that rich people *do* have debt. Sometimes irrationally disproportionate amounts of it. It’s probably better to say that “smart people who live within their means with an eye on the future don’t have debt.”