Diners Club Club Rewards launched in 1985. The world’s first frequent flyer co-brand credit card was the Continental TravelBank Gold MasterCard from Marine Midland Bank (now HSBC) in 1986. The very next year the Citibank American Airlines co-brand was introduced.
Bonuses on these credit cards were laughable by today’s standards and they didn’t earn miles quickly either, there weren’t category bonuses or spend promotions, it’s like Steven Wright says “one mile equals one mile.”
We’ve come a long way since then. Rewards credit cards are big business whether you’re earning 2% cash back or 2 American Express Membership Rewards points per dollar on all of your spending.
I’ve used these miles to travel the world in a way I never would have expected to be able to. I’ve had some amazing experiences, and done it very comfortably, for a fraction of what it would have cost to purchase these same experiences. I’m humbled and grateful for the opportunities that miles and points have afforded me.
Personal finance guru Dave Ramsey though says it’s all a con.
I never met a millionaire who said, "I made all my money with airline miles."
Rich people don’t fall for stupid credit card tricks.— Dave Ramsey (@DaveRamsey) December 28, 2018
Taken literally, this claim is absurd for several reasons.
- You don’t have to make all their money with airline miles for a rewards credit card to make sense.
- How many millionaires do you know who do not use credit cards?
I — and most readers — get tremendous value from credit cards. We’re going to spend money anyway, why not earn the most rewards? Why leave that value sitting on the table.
The thing is though that while Ramsey is taking a great deal of deserved flack from the frequent flyer community over this tweet, and tweets aren’t always the best place for formulating nuanced arguments, offering advice to people that live beyond their means can take making bold claims that convince them to stop doing that. And if smug self-satisfaction helps set someone on a good financial path that would otherwise be tempted to run up debt because a credit card issuer will extend credit, then Ramsey is doing that set of people a service.
Last month I wrote How Not To Lose At Black Friday. The gist? Buy only the things you would have bought anyway, pocketing savings. Don’t give in to the temptation to spend more money because you’re excited about a deal.
I wrote “This Game Is Not For You If…” about similar mistakes people make with mileage-earning credit cards.
- If you don’t pay off your bill in full each month, don’t pay attention to credit card rewards pay attention to your interest rate (and getting the card paid off as quickly as you can)
- And do not spend more money than you would otherwise spend because you’re using a credit card, or because you ‘need’ the spending to hit a bonus. On average people using credit cards do spend more than those using cash, though a number of factors influence that result.
Of course if you can responsibly manage credit then of course you should be using credit cards. They offer the best rewards for the money you spend anyway, and credit card protections and benefits are far better than those offered with debit cards. Here I’m talking about price and return protection; trip cancellation and delay; lost and delayed luggage just to name a few.
I’ve even written about how the American Express Platinum Card medical evacuation coverage gave one reader $275,000 in value taking care of his father who had a heart attack in Southeast Asia.
Reader Arthur’s Father Being Transferred from Gulfstream to Ambulance at Atlanta Peachtree-Dekalb Airport
Three models for how to think about credit cards:
- If you see credit cards as a tool to accomplish what you want in the most efficient, rewarding, and lowest-cost way possible then you shouldn’t listen to Dave Ramsey — but then you probably weren’t listening to him anyway.
- If you see credit cards as the devil’s work, something that controls you (the card made me do it!) then it’s a good idea for someone like Ramsey to talk in stark terms, with firm rules, that aren’t literally true but can be valuable if they help someone manage their finances effectively.
- Some people don’t pay off their bill in full each month and it actually makes sense for them to do this. If you aren’t paying off everything completely then you shouldn’t be focused on credit card rewards — you should be focused on the lowest financing costs.
People have always had a need for credit. Maybe a car needs fixing to be able to go to work. Maybe there’s an emergency medical situation that racks up bills. Without credit cards the need for credit remains, and you go looking for the next best option (hint: credit cards are better than payday loans, and those are better still than loan sharks who break legs).
Rewards credit cards are appropriate only for people in this first group.
You need to understand that people that listen to Dave Ramsey are…99%…in debt. So his message is directed to them. If you have thousands of dollars in debt and $25 in your checking account…make sense to listen to him for some advice and motivational purposes. But as soon as people get out of debt and became financially savvy they stop listening to his crap. He speaks what he “sell”
I like listening to Dave Ramsey on the radio but take him with a lot of salt. I am debt free (did not call him and shout) because I could be, and paid off my home loan 2 years ago. I might have been better off saving/investing and taking mortgage interest rate deductions but I hated owing $ so got 15yr loan, paid extra toward principal each month and I am very satisfied.
I do have airline and hotel credit cards and use them but pay off each month or sooner.
Dave Ramsey recommends “endorsed local providers” some of whom offer financial advice but are not fiduciaries. If his listeners save or invest because of his advice great, but they might consider fee only financial advice and/or low cost no load funds once they become more sophisticated.
Dave Ramsey includes some Christian homilies in his monologues. That is great if it works for him, resonates with his audience demographics and helps him sell a lot of “Financial Peace University” books at classes held at churches. I myself an not Christian so I ignore the “Christy” stuff but whatever.
Anyhow, Dave Ramsey is entertaining and I like points, miles, signup bonus points etc. so I ignore that stuff.
We can assume that airlines love their credit card customers because they upgrade your boarding and give you free luggage. Succinctly stated, Ramsey is correct. Don’t use a credit card to collect the airline miles.
For myself, I use your web site not to maximize points earnings, but to maximize travel experience. If I was remodeling my house, I wouldn’t read a remodel blog to earn more card points, but instead for suggestions on how to approach a remodel project. But that information is typically static, like, how to rewire an outlet or install a door. Travel is highly dynamic, along with card promotions.
Perhaps my 2019 resolution will be to close some unnecessary cards and collect some bonus promotions points as banks become a little more aggressive.
In my opinion I am making my money work for me by wracking up points. We easily get $10,000 to $15,000 of travel per year from credit card points alone and we can only travel about 1 month per year.
Most folks lack the analytical ability and the desire to spend the time required to make travel rewards credit cards a profitable endeavor and financial institutions and blogs profit from this opportunity. For many without the discipline to pay the card off every month, no credit card is the right option. For those that do not want to spend time squeezing every last dollar out of a point, a 2% no annual fee cash back credit card is a great option which yields much of the profit with little time expended. Have a Happy New Year all.
Points matter…as often pointed out by valuation charts on these blogs. Sure, in a ideal situation, no point collector would ever carry a balance, but in the real world, folks often carry balances. The medical situation is the best one I can think of because if you have a $5,000 procedure and cannot afford to pay it off at the moment the bill comes in, you can charge it to a miles or points card, get points and pay interest on the card….OR you can then transfer it to a zero percent interest card….OR you can let them turn you over to a collection agency and ruin your credit which would make you a cash, payday loan customer! IF you’re going to have to carry a balance anyway, WHY NOT carry it on a miles card? or get miles from the purchase then transfer as mentioned? You might as well earn the points even if you have to carry a balance…seems like a no brainer to me. Sure, in an ideal situation, you would never need to carry a balance, but the way I see it, if you’re gonna carry one ANYWAY you may as well get something for it! Maybe paying that $40,000 tax bill and your $20,000 surgery bill which leaves you in debt can have a good outcome of giving you a much needed vacation! LOL
There are many good reasons to carry credit card debt, especially if you are young and understand lifetime consumption smoothing.
If you have to carry a balance, and can’t get a zero rate deal, then it’s a tricky tradeoff between paying the (often) higher rates on points-earning cards and the lower rates you might get elsewhere. If the points card is a good one, and the rate isn’t that much higher than your next best non-zero option, and you don’t have a ton of debt/think you’ll have debt for a long time, then carrying a balance on a points-earning card MIGHT make sense.
As others have said, if you’re already deep in debt, then you need firm rules to dig yourself out. But if you have temporary and modest debt, and reasonable secure future income, getting the points/miles etc might be worth the higher interest payments.
There’s no absolute here, only tradeoffs.
Dave Ramsey helps the people who are his intended audience. His advice to them is solid, and they are better off if they follow it.
We (people who pay off their CC every month) are in a different category.
From my unscientific observation over 15 years of the points and miles fanatics on FlyerTalk, ironically it is specifically the wealthiest users who reap the highest benefits from the credit card “game.” They can afford to collect the best, highest yielding, hard to get credit cards while maintaining stellar credit scores, easily reach the required bonus spend, pay off their credit cards in full each month, and utilize those rewards for high end travel like Singapore Airline Suites and deluxe hotel accommodations at Luxury hotels around the world. A wealthy person who puts his/her high spend on a few strategic cards could conceivably have top elite status with Hyatt, Marriott and Hilton (140K CC (or 20K annual hotel spend st Hyatt) 75K on Ritz or SPG Luxury CC for Marriott and $450 annual fee for Hilton). He/she could also get upgrades through Amex Centurion/Plat Fine Hotels. Ramsey is crazy-Wealthy people love deals.
What he should have said is that the Miles and Points game can be extremely dangerous for people on a limited budget. Unless one is extremely disciplined, that path can lead to disaster.
What Patrick said. Credit card rewards should be used to enhance whatever stage of life you are at. If you are in debt and without significant assets, credit card rewards should be used in a cash back or statement credit fashion to help you build your financial base. If you are wealthy or high income, credit card rewards can provide you with what amounts to discounted luxury travel on a slightly more frequent or luxurious basis. Those who use credit cards rewards for luxury travel (“aspirational awards”) when they should be working on their financial base are the ones who are making the mistake.
Ramsey is, not to put too fine a point on it, corrupt. For example, he tells people they should strive not to have a measurable FICO score than steers those people to a small number of underwriters who will write loans–at a heavy fee–for this group of people.
He is correct generally. Credit cards are terrible for many individuals as they go in debt and pay high interest. The banks abuse these credit card holders. Also hard to ever earn enough miles from ordinary spend to do much. The subset of miles earners who abuse the credit card companies egged on by bloggers. Grab sign up bonuses and cancel cards, never intending to use the cards. They benefit. The abusers win in both groupings. That is life.
Dave Ramsey is a self-serving purveyor of books, seminars and classes. His charging in-debt vets for his classes has always bothered me. He seasons his pitches with a dose of Christianity to tap into the church crowd. He’s a pharisee.
Gary, you should leave this story on line for a longer than normal period. Why? Some really thoughtful, intelligent comments written by people brighter than Dave Ramsey.
@Penny: “IF you’re going to have to carry a balance anyway, WHY NOT carry it on a miles card?” Rewards credit cards (regardless if cash, points, miles) have a national average interest of 17%. Low interest cards are at 14%. The difference is 3%. Compare that to the rewards.
I’ll make it really short, Dave Ramsey. I am a millionaire and I use credit cards for the miles and points for everything I do in life, all the way down to buying a gallon of milk. I have never in my life used a debit card and disagree with your broad generalizations.
I have been listening and following Dave Ramsey for a year and I like what he teaches. I agree with everything except his views on credit cards. I know that using credit cards won’t make me rich. I use them to save me money. I have used points and miles to fly first and business class products around the world on flights that would have cost me tens of thousands of dollars. I have used many hotel points and free night certificates to save thousands of dollars. I agree that most people have no self control when it comes to credit cards and if you don’t then cut them up as he suggests. But I have total self control. I use my cards to pay bills, buy groceries, and do other things that I have to spend on anyway. I pay off my cards in full every month and they never get any interest from me. Credit cards these these are all about using them for their benefits. If you don’t know how to do that then you should not be using them. I cringe when I hear him say he traveled Europe for a few weeks and used nothing but a debit card. But its his life and he is worth over 50 million dollars so he does not need to use points and miles to enjoy the good life. I will gladly continue using points and miles to travel the world without breaking the bank to do so.
Dave Ramsey got out of debt by filing bankruptcy but preaches his baby steps to get out of debt. It’s like if an obese person lost a ton of weight after a gastric bypass but then tells everyone to diet and exercise
A lot of really smart people in this forum. And guess what, the majority of them does not follow Ramsey’s advise or at least agree with him. He preaches to his own choir. Readers of sites such as this are responsible enough not to listen to an idiot like Ramsey. I tuned him off many years ago when he spoke to a caller on his radio show and Ramsey used the Discover Card as his example…Really Dave? That right there told me that Ramsey had no idea about this game unlike us. I felt bad for the guy that he was giving the advise to. The guy missed out on so much that the miles/points strategy has to offer. Hey Ramsey, you don’t belong in our league. Just stick to what you do best, which is a Financial Psychiatrist.
He also has some stupid videos on leasing cars – again the assumption, like credit card, that you are only leasing due to not being able to afford a car. I can afford to buy the car, it’s just that when I trade it in with no prior agreement on its future value, it’s worth a lot less than the lease says it’s worth when I trade it in. Again, he assumes a non-sophisticated audience.
I will not knock or bad mouth Ramsey. I listen to him and am debt free. But I also spend $20k a month with credit cards and have not paid interest on a card in 10 years. The points allow us to travel frequently, Internationally, and for free. I control my credit cards, they don’t control me.
Not sure where the negative comments are coming from based on his tweet. Ramsey said “Rich people dont fall for stupid credit card tricks.” And he said he never met a millionaire who made his money by collecting airline miles.
But if you can conflate Ramseys tweet with Leff’s blog post, I can see why many of the comments generalize Ramsey’s overall advice for which he is well qualified to give. Succinctly he was a millionaire when a million was a lot. He lost it when his loans were called during a banking crisis. His real estate was cash flow positive but his loans were callable.
He parlayed his real life experience into a national radio program and his advice has spared many people from the pitfalls of working with unscrupulous creditors. Much like Suze Ortman. And ironically, much like Gary Leff.
Thank you Dave. Thank you Suze. And thank you Gary!
And happy new year to all!
Miles, points, cash back etc. are baited traps to get most people hooked on credit to pay interest to the card issuing financial company. It is a well known fact that most people cannot pay their balance off each month and cannot control their spending impulses. If the credit card companies were losing money on miles, points, and cash back, they would change their incentive programs. A small percentage of card holders “game” the system, but the other 99.9% are drowning in debt and struggle to make even the interest payments on their debts.
I like Dave Ramsey but disagree with his approach in some areas. I travel for business, can use my personal card and pay the full balance each month. Getting free bags, earlier boarding and club access is worth every cent! And we use our miles for business class seats for our personal travel to Europe and beyond. Sorry Dave, we don’t all live in trailers and have $100,000 in student loan debt. . .my folk taught me the value of a dollar, how to have a nice home, car and payoff my credit cards and live within my means.
If he doesn’t want his miles, I will take them 🙂
Any information re an Amex Platinum medivac benefit says the cardholder pays the cost of 3rd-party services, not Amex.
EV says “But I also spend $20k a month with credit cards and have not paid interest on a card in 10 years. ”
Ridiculous.
Dave’s advice is correct for the vast majority of people. Many would use miles/points as a way to justify use of credit, leading to terrible spending habits and indebtedness. He has been the most successful finance writer and influencer, helpful to many thousands. His point on this is that CC points/miles is not worth the risk of indebtedness for this population. Travel Hackers are a narrow portion of detail-oriented credit users who are willing to do the hard work and take advantage of the CC perks.
“Most folks lack the analytical ability and the desire to spend the time required to make travel rewards credit cards a profitable endeavor and financial institutions and blogs profit from this opportunity.”
It takes literally five minutes a day or less than an hour per week to stay on top of this stuff. A simple spreadsheet makes it possible. Spend an hour less following sports, which likely won’t bring you financial rewards or global travel at greatly reduced prices — unless you’re an athlete!
Staying on top of this stuff let me travel to all the continents again this year, and the value I squeezed out of AA and Delta miles on their international codeshare partners was incredible thanks in part to Gary, Ben, Brian and other bloggers.
So much hate in some of the comments above. Quite sad. Dave Ramsey does a lot of good for those who are in debt (most Americans). Heck, most Americans can’t survive a $1,000 financial emergency without going into debt. I respect a lot of what he says.
Having said that, I don’t agree with his stance on credit cards. I do understand where he is coming from – credit cards for most people will just get them and keep them in debt. Fortunately for most people reading this blog, we don’t fall into that category. We pay off our credit cards each month, maximize our point values by using different cards, etc. The key is to be wise and to pay off your full balance each month (no, maintaining a balance doesn’t automatically increase your credit score).
My godson is probably worth more far more than 50X Dave Ramsay (I assume Ramsay is worth a million) I taught him what he knows about miles and points and he redeems big awards and loves to do it. Its like beating the system to him. People here on Gary’s blog like myself know exactly how to handle credit cards. We are the true deadbeats so to speak.
Dave Ramsey is worth WAY more than a million. Probably more than your godson.
I don’t think Dave Ramsey’s target audience is people reading blogs like this 🙂
Dave Ramsey’s audience will often come from the block like this .
If you read between the lines many on here are getting declined many on here spend excessively more than they can afford to pay you back .
The real point of money is to limit your liability .
I started in this game in the late 80s I’ve never paid interest on credit card and I have charge millions but I’ve been very lucky in my business and with my health .
Many of my friends have not been as lucky
I used Dave’s advice to get out of debt about 15 years ago. It was very helpful at the time, and it set me up to be able to qualify for many rewards cards. I have since, stopped listening to Dave because his advice no longer applies to me. Responsible credit card use has made my life fuller, and more enjoyable. I have traveled more, met interesting people, experienced different cultures, and done it all because of rewards credit cards. I am thankful for such experiences, and the fact that I live in a part of the world where such opportunities are available and attainable to someone of very modest means. We all should step back and consider this. Dave Ramsey’s sweeping statements are likely meant to help his intended audience, and he does help them. I used to be one of them. I am now enjoying life, debt free, and full of “rewards”.
There is certainly a large segment of the public who should never touch a credit card, let alone take out an account, and no amount of miles/points/cashback will ever justify their virtual need to be financially irresponsible. For some people, the credit line on a credit card is free money that needs to be spent now, just as much as any amount of cash in their bank accounts would be. It’s an amazing journey for those people just to climb out of the hole they’ve dug themselves and put themselves on a solid path for the future and to instill in them some degree of discipline so they can manage their lives without dealing with that debt albatross. Sure, they’re missing out on many opportunities. They need to miss out. It’s more than they can handle right now.
Dave is providing them a point of view they can express to themselves when their see their friend or neighbor travelling around the world in first class. Its a pandora’s box, and a very dangerous one if you’re not careful. I’ve been doing this for a while, and even I have to keep meticulous records to ensure that I’m accounting for things like annual fees as part of my travel budget. Sure, maybe I get a “travel credit” on some of that, via paid travel that “I would have paid for anyway…” and it’s also important to remind myself that paying cash to save points for a better rate of return on a premium product I would never have paid for in the first place is not always a wise trade-off. The quality and quantity of the vacations I’ve taken over the last several years have greatly improved, but I’m certainly not spending any less.
Got Dave’s book for free from my local library in 2009. Back then we were borrowing from savings each month to pay off credit card debt. We followed his plan and today, June 26, 2019, we are completely debt free including our mortgage. We do not use credit cards. If anyone suggests that our situation in 2009 was better than it is in 2019, you must need some serious help. Dave helped us tremendously and now we can cash flow our kid’s college tuition (x2). Bloggers and commenters who dislike Dave are entitled to their opinion, but in my opinion he is doing a great service.
Does everyone on here understand that paying off the credit card each month is not the end of the story? If you are buying anything other than necessities just to get points, you’ve already lost. The credit card companies get people to spend more than they otherwise would have with the allure of “points”. You’re not coming out ahead if you’re spending money you otherwise would have saved had it not been for the card. The “free trip” is not free if you are making more purchases because of the card. The money you spent could have been saved and invested, and with a long term investment you’d make way more than that “free” trip was ever worth.