Credit cards charge high interest rates. That's a fact. And, you don't want to end up paying interest on your cards as this can cause you several financial issues. You'll make all your purchases costlier if you pay interest, and will drain your checking account with monthly payments.
To make sure you never pay interest, finance expert Dave Ramsey suggests simply not having a credit card. But, that's actually a really bad move. Here's why.
Ramsey's recommendation for avoiding credit card interest
When it comes to avoiding credit card interest, Dave Ramsey is clear on his preferred approach.
"The best way to avoid paying credit card interest is to pay off your credit card and then cut it up! Better yet -- don't have a credit card to begin with," he suggests. Rather than using a credit card, Ramsey believes you should pay cash for all purchases by using your debit card linked to your bank account.
Here's what you should do instead of listening to Ramsey
It's true that if you don't have a credit card, you aren't going to get hit with interest charges on it. Obviously, a creditor can't make you pay interest if you aren't using its cards at all.
But, giving up on credit cards entirely just to avoid interest charges is often the wrong move to make. You'd be passing up all of the benefits of credit cards just because you don't trust yourself to avoid the one major downside -- even though the downside is easily avoidable in other ways.
See, you will not pay $1 in credit card interest if you pay off your card balance in full when it's due. You only are charged interest if you carry a balance beyond your statement period. If you can limit the spending on your card to ensure you can pay it off in full when the bill comes, creditors aren't going to get any interest payments from you at all -- you'll only be paying off the amount you spent.
Credit cards can actually pay you
This means there's no cost to using credit cards if you use them wisely, and there's a lot of upside to them. Credit cards can allow you to earn rewards, which you could cash in on things like free trips or even literal cash (in the case of a cash back card). When you make payments, they are also reported to the credit reporting agencies so you can earn a good credit score, which in turn will make a mortgage, car loan payment, or auto insurance payment cheaper.
The best way to avoid credit card interest is to get a card and pay it off in full. If you can be responsible enough to limit your spending on your card, try to use it for as many purchases as possible to maximize your rewards and make sure your full payment is sent in before the statement due date.
If you don't trust yourself to do that, you can still get a card to use for fixed monthly expenses (like your internet bill) and then set up autopay for that amount while leaving the card at home and not using it for other things (so you can still earn some rewards and build credit).
Taking this approach is a far better option than following Ramsey's advice to steer clear of cards for good.
FAQs
Dave Ramsey says the best way to avoid it is to cut up your credit cards or not get a card in the first place. Ramsey is wrong, as credit cards have benefits and you can avoid interest in other ways.
Does Dave Ramsey say not to use credit cards? ›
But perhaps Ramsey's most absolute stance is that there is no responsible use of credit cards. There is no reason for anyone to use them. The rewards promised from credit cards are a mirage. You don't need a credit score.
What is the best strategy to avoid paying interest on your credit cards? ›
Pay your monthly statement in full and on time
Paying the full amount will help you avoid any interest charges. If you can't pay your statement balance off completely, try to make a smaller payment (not less than the minimum payment).
What's one way you can never pay credit card interest? ›
Pay your credit card bill in full every month
If you pay off every bill completely, you won't carry a balance into the next month, meaning you won't owe any credit card interest at all.
Why does Dave Ramsey say you don't need a credit score? ›
A credit score does not show how well you're managing your money or even if you have a dollar to your name. Instead, it's really just a score of how well you can play the debt game with the bank. It's an “I love debt” score. Everyone should have 2 credit cards.
What does Warren Buffett say about credit card? ›
Because they pave the way for high-interest debt accumulation, investing mogul and billionaire Warren Buffett is generally against credit cards and advocates for spending in cash as much as possible. It's a great idea, isn't it? Just bid adieu to credit cards and start fresh with a more cash-centric approach.
What is the number 1 rule of using credit cards? ›
1. Pay off your balance every month. Avoid paying interest on your credit card purchases by paying the full balance each billing cycle. Resist the temptation to spend more than you can pay for any given month, and you'll enjoy the benefits of using a credit card without interest charges.
What's a bad strategy to pay off your credit card? ›
Since paying only the minimum on your credit card debt could end up costing you thousands and take you years to repay, you shouldn't follow this strategy once you can afford to pay more.
How to get credit card interest waived? ›
How to Waive Interest on a Credit Card. The best way to go about asking your credit card company to waive interest charges is to call customer service and explain the situation that caused the interest. Being late on a payment or only paying the minimum amount due will trigger an interest charge, for example.
When should you pay a credit card to avoid interest? ›
Most credit cards provide an interest-free grace period of around 21 days starting from the day your monthly statement is generated, to the day your payment is due. However, if you don't pay it during that time, an interest charge will go into affect and you will end up with a balance that rolls over to the next month.
Outside of bankruptcy or debt settlement, there are really no other ways to completely wipe away credit card debt without paying. Making minimum payments and slowly chipping away at the balance is the norm for most people in debt, and that may be the best option in many situations.
Is the national debt relief program legit? ›
Is National Debt Relief legit? National Debt Relief is an accredited member of the American Association for Debt Resolution (AADR). It has been around since 2009 and has helped over 600,000 individuals reduce their debt. It also has an A+ rating from the BBB (Better Business Bureau).
Does freezing your credit card stop interest? ›
Credit cards can be frozen for many reasons, usually to prevent fraud or to stop yourself spending. Freezing interest charges is also possible if you are in financial difficulty, but will require a longer conversation with your provider about your affordability.
Does Dave Ramsey have a FICO score? ›
(Just in case you're wondering: Yes, Dave Ramsey's credit score is indeterminable. And he wears that accomplishment with pride!)
Why did my credit score go from 524 to 0? ›
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Can you live life without credit? ›
Living well without credit is certainly possible. We'll be straightforward here: Many things in life are much easier when you have a good credit score. But lacking a credit score doesn't mean you'll be forced to go live in the woods. You can theoretically live your life without having any credit to your name.
Is it better not to use your credit card? ›
If you don't use your credit card, the card issuer may close your account. You are also more susceptible to fraud if you aren't vigilant about checking up on the inactive card, and fraudulent charges can affect your credit rating and finances.
What does Dave Ramsey say about spending? ›
Ramsey offers straightforward advice to cut back on unnecessary spending: Be purposeful. Ensure your money is going toward something worthwhile, like paying off debt, saving for a down payment on a home, or setting up an emergency fund. Create a budget, keep track of your expenditure, and monitor it.
Does it hurt your credit to never use a credit card? ›
Bottom Line. If you don't use a particular credit card, you won't see an impact on your credit score as long as the card stays open. But the consequences to inactive credit card accounts could have an unwanted effect if the bank decides to close your card.
How much does Dave Ramsey say to have in savings? ›
Ramsey's general recommendation in his Baby Steps has long been to start with having $1,000 saved in a starter emergency fund. If you earn under $20,000 a year, the post on Ramsey Solutions said you may adjust this amount to $500.
