Better to Leave Them Open?
by Dave Ramsey
Dear Dave,
We’ve paid off most of our credit cards. My wife doesn’t want to pay all of them off, though. She says it’s a good idea to have open cards and a high score on your credit report to show that you’re creditworthy. I want them out of our lives completely. What do you think?
Wayne
Dear Wayne,
I think it depends a lot on the goal you have in mind. If your goal is to stay in debt for a really long time, then by all means keep a credit card open. If your goal is to get out of debt and stay out of debt, then what does it matter if your credit score goes down? My FICO score is zero, and I could probably buy the FICO company for cash!
A credit score is really nothing more than an “I Love Debt” score. It isn’t based on how “worthy” you are, how much you have, or how much you make. It’s based on the fact that you got into debt, stayed there for a long time, and paid creditors a lot of unnecessary money. I stopped borrowing and paying back debt 20 years ago. As a result, my credit score gradually deteriorated to the point where it doesn’t even exist anymore.
FICO will love you if you’re always in debt and making payments, but you’ll never be able to take care of your family, retire with dignity, or make a difference in the world through giving.
Close the accounts, Wayne. Cut up the cards and pay cash for everything! You can’t worship at the altar of the great FICO if you want to get out of debt, and stay out of debt!
– Dave
Photo by Steve Woods
Posted by Glenna
from Utah, USA
My husband and I are serving a mission in Nepal. The only way we can obtain Nepal rupees is at the ATM or inside the bank with a credit/debit card. Also while travelling any where in the world or US, with a card, it is not necessary to carry large sums of cash with us.
|
Posted by Zach
from Utah
I understand the importance of staying out of debt and do everything within my power to do that... But what about the things that the normal middle class person can't afford to pay cash for? Like a house? And most of the time even a car? The majority of America can not live without some sort of debt. If you have the sort of money that Dave does, then yes, it is possible to stay out of debt and buy whatever you want. Credit Card debt is dangerous, but there are other forms of debt that are needed. The question is, How do you get to the point where ZERO debt is required?
|
Posted by Sharon
from California
I think credit cards are ok if you pay them off each month - it takes self-control to limit yourself to only what you can afford to pay monthly, but a FICO score is a necessary evil if you need to get a mortgage, have emergency medical bills, etc. The average person without a large amount of assets needs a good FICO score.
|
Posted by Jennifer
from California
I'm sorry, maybe I'm missing the boat, but how can you have a ZERO FICO score?? The lowest it gets to is 350.
As for keeping your scores high, my sister (not LDS, mind you) uses her credit card when she goes shopping but keeps track of everything on paper, and pays off the balances every month. Because she does this, she often gets special discounts and cash back, so she saves more, AND she keeps her credit score high for when she has to make a large purchase, like a car or a home, and the last car she got qualified for 0% APR because of it.
Sometimes I wonder if these answers work...
|
Posted by Doris
from Rock Springs, WY
Thanks for your perspective on paying off credit cards. I've thought for a long time that I needed to have a major credit card, but have hesitated. Now I know I'll never need one. I'm passing this on to my daughter who is single and 25. She's doing well so far with no credit card.
|
Posted by Julianne
from SLC, UT
I may not be an expert or financial guru but this is just bad advice.
Very few people will ever be able to pay cash for a house. In this case, you need a FICO score so you can get approved for a loan for a mortgage. Even the brethren have said having a mortgage is an acceptable "obligation" to have.
Eliminating all your records with FICO...eliminates your chances of getting back into debt...but it also eliminates any chances of every buying a house, or even having a reserve credit card in an emergency. I say that is dumb.
|
Posted by Robin
from Michigan
The only "problem" I can see with getting rid of all the credit cards is that it's sometimes necessary to have one to reserve a motel room or make an online purchase. Are debit cards any better?
|
Posted by Jane
from North Carolina
I learned my lesson about a credit card a long time ago. Now I just use a debit card. This works just fine for me. I also don't have any bills other than utilities and rent. I own two pieces of property one 80 acres and the other about 40 in two different states. I don't know what my credit score is and since I avoid debt...I really don't care.
|
Posted by Melia
from Utah
What about buying a home? A nonexistent FICO score will bring higer payments unless your savings is enough to purchase a home without a loan. Right?
|
Posted by Eldon
from lake point, utah
Have you ever tried to register in a decent hotel with cash? Or rent a car without a credit card? I travel for my company and trying to pay cash for everything isn't practical or even possible in this world. But I only use my CC for these things and pay off the charges right away.
|
Posted by Susan
from Portland, Oregon
Unless you never plan to buy a house, stay in a hotel, rent a car, etc. Dave's answer isn't for everyone. A responsible person can have and use a credit card and stay out of debt simply by paying it off each month. If you can pay cash for a house or even a car, I say you are one very lucky person. Most of us are not so lucky. With the way things are with the economy and everything right now, it would be very difficult to find a bank that will lend to someone with a "zero" credit score. Lenders use the score to see if you are responsible enough to pay back what you borrow. A credit card can be a great way to show you can pay back what you borrow. Sorry Dave, I'm keeping my credit cards.
|
Posted by Brian
from AZ
I agree pay off one card monthly if you need it for travel/hotel etc. Usually a debit card can do this and you can get rid of all credit cards. Get out of debt ASAP. I think we all can see the wisdom in this counsel that we have been given for years. What is so wrong about using debit/check/cash for all our purchases. It forces us to really wait until we can afford it. Houses included.
|
Posted by Cori
from Tennessee
Lots of responses say that Dave is crazy to teach us to ditch the credit cards. You are crazy to think that way. He teaches to get out of debt and have a huge CASH emergency account instead of an emergency credit card. He teaches to save up for your house and for your car. Yes you can use debit at hotelss and to rent cars. Even nice ones. Do research. It's worth it. If you do need a mortgage for your home he says to have a HUGE down payment and get a 15 year loan or even pay cash for it. Any mortage company that sees you have a cash net worth of 5-6 month of expenses AND has a pretty good down payment will certaily give you a mortage without a FICO score. Learn a little more about what Dave has to say before you call him crazy. He lives everything he teaches. The only person who is crazy here is the one who thinks he can't survive with out someone elses' money.
|
