Why Dave Ramsey's Advice About Annual Credit Card Fees Is Wrong

You shouldn't necessarily listen to the finance expert about this issue.

Personal finance expert Dave Ramsey is not a fan of credit cards. In fact, Ramsey is well-known for advising his readers and listeners to steer clear of virtually all debt and suggesting that people pay cash for purchases or use debit cards instead.

Ramsey has many reasons for suggesting his readers avoid card use. And annual fees are one of his justifications for saying no to credit. In fact, the Ramsey Solutions blog explains that annual fees are "another way credit card companies make their money," and warns that these fees are one of several dangers of cards.

But, is Ramsey right on this issue? 

Here's why Ramsey doesn't like cards with annual fees 

The Ramsey Solutions blog paints a dire picture of why annual fees are not worth paying. According to the blog, many card companies hide the details of what annual fees will cost, resulting in people misunderstanding the price of becoming a cardholder. Ramsey's blog also suggests that annual fees typically exceed any rewards you could earn with your card. 

"Let’s say your card offers airline miles and has an $80 annual fee," the blog reads. "If you spend $8,000 on the card every year and pay it off each month, you’ll have racked up enough miles to get a free ticket in three years. Three years! And by that time, you’ll have spent $240 in annual fees alone. You could’ve already paid for your own flight with that money!"

This example does indeed paint a picture of a situation where annual fees are definitely not worth it. But it fails to tell the whole story. 

The problem with Ramsey's advice

The big problem with Ramsey's justification for describing annual fees as a waste of money is that the explanation given fails to take into account other benefits cards can provide.

Most credit cards that have annual fees come with substantial cardholder perks. For example, it's common for cards with annual fees to offer:

• Statement credits for certain kinds of spending, such as money back for in-flight purchases or for TSA precheck 
• Airline lounge access
• Free companion airline tickets
• Free checked bags
• Travel insurance
• Rental car insurance
• Purchase protection

Now, not every card with an annual fee is going to offer all of these perks. But virtually all cards that charge fees offer at least some of them -- otherwise, no one would sign up and the card issuer would eventually stop offering it. 

And these perks can have substantial value, which may more than cover the fee, even without taking rewards into account. For example, if you have a card with a $100 fee but it allows you to avoid a $30 fee for checked bags, all you'd need to do is fly with four suitcases to more than make up for the fee. 

Ultimately, you shouldn't be afraid to sign up for a card that charges you for membership, as long as you've looked at the perks and done the math to make sure the annual cost is worth paying. If you find that it is, you should disregard Ramsey's advice and get the card as long as you're confident you'll be able to spend responsibly and pay off your card in full when the statement is due.